Businesses count costs as India and Bangladesh impose trade restrictions

Businesses are bracing for possible impact after neighbouring countries India and Bangladesh recently imposed tit-for-tat trade restrictions following months of verbal sparring, reports the BBC.

Last month, Bangladesh restricted land imports of cotton yarn from India to shield local industries from cheaper imports.

Dhaka's move came just days after India abruptly stopped the transhipment facility it had offered Bangladesh for exporting cargo to third countries via Indian ports and airports, citing "congestion".

Relations between the two countries have soured since former Prime Minister Sheikh Hasina was ousted in August after massive protests. She is currently in exile in India, while an interim administration led by Nobel Peace Prize laureate Muhammad Yunus is in charge.

Since then, Dhaka has demanded Hasina's extradition to face charges of crimes against humanity, money laundering, and corruption. Hasina denies all accusations, and Delhi has not officially responded to the demand.

India has also repeatedly raised concerns over reported attacks on the minority Hindu community in Bangladesh. It recently stated that the alleged killing of a Hindu community leader "reflects a pattern of systematic persecution under the interim government".

Bangladesh, a Muslim-majority nation, denies targeting minorities, describing most incidents as politically motivated or ordinary crimes. Hindus make up less than 10% of its 170 million population.

As diplomatic tensions rise, businesses are counting the cost.

Yarn, which is vital for Bangladesh's clothing factories, can still be imported by sea and air—though those routes are slower and more expensive.

In 2024, India exported $1.6 billion (£1.2 billion) worth of cotton yarn to Bangladesh, a third of it via land ports.

The now-halted transhipment facility allowed Bangladeshi exporters to send clothing destined for high-end brands by road to Indian cities, from where it was flown to Europe and the US.

"It's a blow to Bangladesh's fast-fashion export industry," said Anis Ahmed, head of supply chain firm MGH Group, which ships for brands such as Zara. "The India route got cargo to Western countries in a week. By sea, it takes up to eight weeks."

Bangladesh, the world's second-largest garment exporter after China, shipped $38 billion in clothing last year. Over $1 billion of this moved via the India land-air route, which Ahmed said was thriving.

Limited air freight capacity and under-equipped airports continue to hamper direct exports from Bangladesh.

Many see Delhi's withdrawal of the transhipment facility as a reaction to remarks made by Yunus during a recent visit to China.

He had referred to Bangladesh as the "only guardian of the ocean" for India's landlocked north-east and suggested the region could become an "extension of the Chinese economy".

Leaders from India's north-eastern states called the comments "offensive".

Yunus's remarks, which highlighted India's strategic vulnerability in the region to China, raised alarms in Delhi.

India's north-east is linked to the mainland by the 20km-wide Siliguri Corridor—dubbed the "chicken's neck"—flanked by Nepal and Bangladesh, and near Tibet's Chumbi Valley.

With a history of border tensions and a war lost to China in 1962, Indian defence planners fear that Beijing could target the corridor in any future conflict to cut off the north-east.

Bangladeshi analysts argue that Yunus's remarks were misinterpreted and were aimed at promoting regional connectivity.

During the same China visit, Dhaka also welcomed Beijing's interest in a $1 billion Teesta River project in northern Bangladesh.

Indian analysts warn that Chinese involvement in a project near the strategic Siliguri Corridor could unsettle Delhi.

Concerns are mounting on both sides over the deteriorating relationship.

In Bangladesh, resentment is growing over tightened Indian visa rules, with approvals plunging since Hasina's ousting. Previously, two million Bangladeshis visited India annually for tourism, business, education, and medical care. The number of visas issued daily has reportedly dropped by over 80% in recent months, according to local media.

Hasina's continued stay in India and the extradition demand remain major irritants.

"They should realise there is no way we can just hand Hasina over. We know what will happen to her if she's returned. I don't think public opinion in India would support that," said Shyam Saran, a former Indian foreign secretary.

Amid rising tensions, India's clothing manufacturers' association has called for a ban on Bangladeshi garment imports via land. Bangladeshi analysts warn that further trade barriers would be counterproductive.

"I think there is a strong view in Bangladesh that we should reassess the other transit and transhipment facilities given to India [for its north-eastern states] by the earlier [Hasina] government," said Debapriya Bhattacharya, a senior economist with the Centre for Policy Dialogue in Dhaka.

India uses Bangladeshi ports, roads, and waterways to transport goods to its landlocked north-east, reducing distance, time, and costs. However, officials note that transit volumes have not reached expected levels.

Delhi-Dhaka tensions are also intensifying amid growing ties between Bangladesh and Pakistan.

Bangladesh, formerly East Pakistan, gained independence in 1971 with Indian support. Hasina distanced herself from Pakistan during her 15-year rule.

Pakistan's Foreign Secretary Amna Baloch visited Dhaka last month, the first such visit in 15 years. A planned visit by Deputy Prime Minister Ishaq Dar was postponed due to renewed India-Pakistan tensions following a deadly militant attack in Indian-administered Kashmir.

"I don't think there's concern about Dhaka's outreach to Pakistan. But if there's any intent to collaborate in a way that challenges India, that would clearly raise alarms," said Saran.

Sharp official reactions from both sides are also shaping public sentiment. Anti-India feelings are growing in Bangladesh, with Indian media accused of exaggerating reports of attacks on minorities and Islamist threats.

The people-to-people ties built over decades appear to be eroding. Analysts warn that without restraint and dialogue, both countries risk harming their long-standing trade and economic relationship.