INDIA played a pivotal role in the birth of Bangladesh and in the early years the foreign and economic policies of the two neighbouring countries bore a striking similarity. A 25 year Friendship Treaty was signed in March 1972, and people on both sides were inclined to believe that this friendship would be permanent and remain the cornerstone of the foreign policy of both countries. But even while Bangabandhu was alive relations began to sour and with his assassination in August 1975, hit rock bottom. Since then they have remained difficult and tense, although there has recently been significant improvement. This article seeks to explain a few problems that have caused a strain in the bilateral relationship and advances suggestions for the future.

A number of political and security issues continue to elude resolution and have bedevilled and generally undermined relations during the past 34 years between India and Bangladesh. There are several reasons for this. The excellent rapport that existed between the two countries in the early years could never be replicated again. Post August 1975, successive governments in Bangladesh were viewed with varying degrees of suspicion and mistrust by India. The situation on the Bangladesh side was no different. The decision to take the Ganges water issue to the UN in 1976 was viewed by India as a hostile act. Despite some improvement when a water agreement on the sharing of the Ganges was signed in 1977, the mistrust remained. The visible improvement in Bangladesh’s relations with the US, China, Pakistan and Saudi Arabia in the 1970s and ’80s was viewed with great suspicion by India.

The land boundary between the two countries is one of the longest in the world, with India almost surrounding Bangladesh. Furthermore, they share a riverine border of 180 km, which poses serious problems because of the shifting river routes, soil erosion and frequent floods, making it difficult to demarcate borders. The porous border has been a source of constant friction.

On the Bangladesh side, without question, its demand for an equitable share of water from the shared rivers and the perception that India has shown little sympathy for Bangladesh’s position has been a major reason for the souring of bilateral relations. India’s refusal to discuss the water issue on a sub-regional basis and the lack of progress in respect of the other shared rivers, further poisoned the discourse. More recently, the whole issue of river linking has become a major source of irritation. At the same time, India feels that on the insurgency issue Bangladesh’s response has been far from satisfactory.

 

The porous border has proved to be conducive for drug trafficking, gun running and cross-border infiltration by terrorists. Unfortunately, both sides play the blame game instead of trying to find solutions to the problems at hand. Since the early ’80s, a steady flow of reports has been published in the mainstream media about arms smuggling through the Chittagong coastline. Bangladesh has, in recent years, emerged as a major conduit for gun running thanks to its strategic location. Insurgent groups in South Asia are perhaps targeting Bangladesh because it has a 172 km porous border with India and Myanmar. While this alarming growth in the availability of arms has had a profound impact on the deteriorating law and order situation within Bangladesh, it has at the same time seriously dented relations with India.

 

Most border incidents between the two countries are largely due to either ill-defined boundaries or the unresolved problem of enclaves and adverse possession of land. Occasional outbreaks of hostilities have sometimes taken such an ugly turn that public opinion has been further alienated on both sides. Such incidents invariably make it that much more difficult to restore some sense of normality in bilateral relations.

Another thorny bilateral issue that has assumed considerable significance in recent years is the Indian allegation that insurgents from the North East use Bangladesh as their base. Successive governments have emphatically rejected such allegations, saying that Bangladesh as an independent state has followed the policy of not allowing any forces, foreign or indigenous, to use her soil for activities against any country, especially India. For its part, India claims that it has incontrovertible proof and has further held the ISI responsible for providing support to these insurgency groups, accusing the Bangladesh authorities of connivance. The Indian media has played an active role in fanning this perception.

A great deal of human suffering has resulted from the failure to implement a long-standing agreement for the exchange of enclaves, essentially a legacy of the Radcliff award. The lack of progress in resolving this situation can in part be blamed on India’s insistence that the entire land boundary between the two nations be first demarcated before the transfer of the enclaves takes place. Indians within the enclaves in Bangladesh will be given the option of staying on or moving to India and vice versa. The terms and conditions surrounding the exchange of populations have further complicated matters.

The dispute over the sharing of the waters of the Ganges has been a source of much friction and bitterness in Indo-Bangladesh relations. The scarcity of water during the six month dry season in the lower Ganges basin within Bangladesh has disrupted the lives of millions of people through desertification, deforestation, loss of agriculture, reduced fish catch, reduced navigability, and so on. A 30-year accord was eventually signed between Bangladesh and India in December 1996. The essence of the agreement was to share the shortage during the leanest period. With the exception of the first dry season immediately after the signing of the treaty, April-May 1997, the flows have proved to be in accordance with the terms of the 1996 treaty.

 

India’s plans to link its major rivers, including the Ganges and the Brahmaputra, has caused an uproar. This proposal was consistently rejected by Bangladesh, as the initiative would seriously damage the ecology of the Brahmaputra basin within Bangladesh. The country has favoured the development of water resources on a regional basis, involving both Nepal and Bhutan, a proposal rejected by India which prefers to deal with this matter bilaterally with each of its neighbours.

The threat perception along the Bangladesh border underlines the need to evolve a comprehensive border management policy. Elements of such a policy would include the setting up of effective mechanisms to manage the trans-border movement of people, including joint surveillance and joint patrolling, regular exchange of intelligence and possibly setting up of a joint intelligence unit on both sides of the border, which would ensure prompt exchange of intelligence and speedy action. It would also entail a closer working relationship between the BDR and BSF, as well as between the district administrations on both sides of the border. Whilst at the present there is strong support within India to fence large parts of the border, such an arrangement is only likely to cause misery and hardship and increase the opportunities to squeeze money from all those crossing the border illegally.

 

In the case of the enclaves, there is a need to undertake a joint census of the population and their properties, moveable and immoveable. Each family in the enclaves would be given an option to stay or move to their country of citizenship. People opting to move out should be allowed to sell or exchange their properties lawfully.

Unless a climate of trust is established between the policy-makers of the two countries, the situation is only likely to worsen. It is also essential to involve the government of West Bengal, whose active support is essential for good neighbourly relations. It will take years for the people of Bangladesh to overcome this negative perception. India must make the first move towards reconciliation with its smaller neighbour.

Geographical proximity was obviously a key factor in the development of economic and trade relations between India and Bangladesh. The two countries have a long-standing economic relationship. The partition of India and Bengal in 1947 ruptured what was once a single integrated economy with a common infrastructure, resulting in two separate economies. Subsequently, trade between the two distinct political entities has ebbed and flowed.

 

In 2004, India’s officially recorded exports to Bangladesh were about US $1.7 billion but its imports from Bangladesh were just US $78 million. Since 1996-97, Indian exports to Bangladesh (in nominal US dollars) have grown, but India’s imports from Bangladesh over the same period remained low. Consequently, Bangladesh’s bilateral trade deficit with India has been increasing rapidly.

In addition to the two billion dollars of official exports from India, a further two million dollars worth of goods, at a conservative estimate, are smuggled across the border. If we add to this India’s foreign exchange earning from the thousands of Bangladeshis who visit India for medical treatment, tourism, shopping, and education, this would add up to a further one billion dollars. There are approximately 100,000 or more Indians working in Bangladesh in various positions. Many are in the readymade garment business; others work in senior management positions in different sectors. It is estimated that there are over 300 training establishments, many in the IT sector, which have Indian collaboration in one form or another. The total foreign exchange earnings of India this year could be in excess of $10 billion, making Bangladesh one of the most important business partners for India worldwide.

Both the government and policy-makers in Bangladesh now acknowledge that the trade imbalance with India was a result of the liberalization of Bangladesh’s trade regime in the 1990s. Whilst this process of liberalization may have been at the prompting of the World Bank and the IMF, it was also caused by the rapid expansion in Bangladesh’s export of ready-made garments and India’s ability to supply raw materials, in particular yarn, at competitive prices, to meet Bangladesh’s requirements.

Smuggling of goods has also increased substantially. According to some Indian studies the quantity of goods smuggled across the border each year is in excess of the formal trade. Research on the Bangladesh side also indicates that goods close to $2 billion are smuggled from India into Bangladesh annually.

 

Although the expansion of India’s exports to Bangladesh can hardly be blamed on the Indian government, the imbalance has become a major stumbling block in bilateral relations. The case of initiating anti-dumping action against export of car batteries to India became a cause célèbre in Bangladesh. Perhaps the most emotive and pressing example relates to the export of readymade garments (RMG) to India. Whereas, India has, both bilaterally and under SAPTA, given some duty concessions on RMG and other items of special interest to Bangladesh, the rates of duty remain high.

India has now proposed a Free Trade Agreement to Bangladesh along the lines of the bilateral Indo-Sri Lanka FTA. The Indians have indicated a willingness to make substantial concessions under such a bilateral arrangement. The Indian side has pointed out that whereas Bangladesh would benefit from an early harvest, India would expect a gradual roll back of duties over a period of eight or more years. So far, the response of the Bangladesh government has been lukewarm, demanding that India provide concession within the SAFTA framework. It feels that a bilateral FTA with India would undermine not only SAFTA but also the entire SAARC process. The private sector in Bangladesh is, on balance, favourably disposed to a bilateral FTA with India.

 

This relationship of mistrust and hostility costs both countries billions of dollars annually in missed opportunities. Transit or trans-shipment facilities would potentially save India hundreds of millions, possibly billions of dollars every year in transportation costs and generate substantial revenues and jobs for Bangladesh. Moreover, India has offered that in return for transit rights to the Indian North East, it would be willing to rebuild Bangladesh’s railway system which is in dire need of modernization, and help integrate it into the Indian railway network. India would also perhaps help in improving the quality of roads and waterways, provided Bangladesh was willing to provide easy access for the movement of cargo to and from the North East. But it is equally important that India be flexible in allowing transit and the movement of goods between Nepal and Bhutan on one side and Bangladesh on the other.

Indeed, with a more cooperative relationship, Chittagong port could emerge as the principal point of exit for all exports from India’s North East as well as Bhutan and Nepal, again generating billions of dollars of revenue annually for Bangladesh. Since the government of Bangladesh, with encouragement from its development partners, is actively considering building a deep sea port and expanding the facilities at Chittagong, it has become all the more important to look at Chittagong as a regional hub.

A greater integration of the two economies, allowing each to specialize in areas in which they possess a comparative advantage, would revolutionize Bangladesh’s economy and be of significant benefit to India as well. It would create a congenial atmosphere for the resolution of other outstanding problems that have adversely impacted on bilateral relations for the past thirty years. There can be no doubt that greater cross-border investments would reap significant benefits for both countries. Bangladesh gas exports to India, as and when it has a surplus, should also be considered, purely on its economic merits.

Similarly, given the substantial coal discoveries, we should be looking to India as a major market for our surplus coal. What is important is that Bangladesh takes full advantage of its gas and coal reserves to fast track its development and growth. The development of these resources will provide an enormous boost to attracting more FDI into the country. Bangladesh is fortunate in being India’s neighbour, one of the fastest growing economies in Asia. We should take full advantage of our geographic location.

 

The economic growth and development of both Bangladesh and the Indian North East can benefit immensely through the development and expansion of trade and economic cooperation between these two geographically contiguous parts of the subcontinent. The North East is rich in natural resources. Bangladesh on its side has a great deal to offer, including access to Chittagong port, as well as to the rest of India through Bangladesh. Thus the issue of developing economic cooperation between Bangladesh and the Indian North East has become an important issue in charting the future of Indo-Bangladesh relations.

The case of La Farge (a leading French multinational) cement factory provides a unique example. La Farge has invested US $250 million in a cement plant at Chattak, Sylhet, on the border of Bangladesh and Meghalaya. The limestone is transported by conveyor belt from a quarry in Meghalaya to the plant inside Bangladesh. Two other cement plants using limes-tone from across the border are under negotiation.

 

Bangladesh can provide a range of consumer products to the North East at competitive prices taking advantage of its geographical proximity as also serve as a good market for products from the North East. It is necessary to remove the many existing trade barriers, both tariff and non-tariff ones, that are presently a major hindrance to trade. This will require both governments to work closely. Communications need to be improved, as do banking services. The land custom offices will have to be developed and provided the necessary infrastructure. But above all, there has to be a clear political signal from Delhi that it would welcome such cooperation.

It is undeniable that were both sides to make a concerted effort, relations could be improved in a relatively short period of time. Indian investment in Bangladesh is just beginning, but there is no reason why it should not be much larger in scale than it has been till date. A more closely integrated economy would ensure that the relationship becomes a win-win situation for both sides.

Undoubtedly one of the most important developments in bilateral relations has been the decision of the Tata Group to invest US $2.5 billion in Bangladesh, in four different projects – a steel mill, a fertilizer plant, two power plants and a coal mine – the largest single investment by a foreign investor in the country. The Tata investment could go a long way in reducing the trade gap between the two countries, result in several spin-offs and make a significant contribution to the GNP of the country. It is, therefore, important that the government of Bangladesh finalise the agreements as soon as possible.

There has also been a flurry of interest from other large groups in India, such as Essar, Reliance, Mittal and the Birlas. In the meantime, other Indian investments in Bangladesh are already underway.

 

A critical need exists to promote a mutually beneficial and sustainable pattern of economic relations between Bangladesh and India. India has to take greater initiative to support the economic growth and build up the export capacity of Bangladesh by providing free access to its large market and beyond, within the framework of SAFTA. The Government of India must proceed to achieve this goal in a time bound manner. While India cannot be pressurized to accelerate the pace of opening up of its economy to global competition, it would be a good economic and political gesture to open its market without NTBs to products from Bangladesh.

Border trade involving traditional modes of transport and well-defined traditional local goods, and SME products of interest to consumers on both sides of the border, also need to be liberalized. This would effectively lessen the magnitude of informal trade and increase the potential for joint venture projects on both sides.

It is possible for Bangladesh to take necessary steps to facilitate reciprocal transit facilities, especially for the movement of Indian goods through Bangladesh to Eastern and North Eastern India, and for facilitating movement of Bangladeshi goods through India to Nepal. The Government of Bangladesh should de-link this trade and investment promotion from other issues. The advantages of free transit could be multiplied by extending the bilateral transit treaty to include Bhutan, Myanmar and even Pakistan. The infrastructure in this entire sub-region needs to be upgraded to measure up to the needs of mutual trade expansion.

For promoting people to people participation in economic relations between the two countries, the governments should liberalize the flow of information, visa procedures, and exchange of media personnel, academics, and business representatives. A liberalization of visa regimes towards no-visa or multiple entry visas would help in increasing communication between the two countries.

 

The finance ministers of Bangladesh and India should meet at least once a year under the auspices of SAARC and when necessary, bilaterally, to discuss issues requiring some degree of coordination of macroeconomic policies affecting bilateral/multilateral economic relations. If such a forum were initiated in 2006, it would maximize areas of convergence and minimize areas of divergence of national economic policies and contribute significantly to the welfare of the region as a whole.

During his recent visit to Dhaka for the 13th SAARC summit, Prime Minister Manmohan Singh provided a clear indication that India wants to place its relations with Bangladesh on a better footing. This should provide a significant impetus to the efforts on both sides to work towards building a more stable and mutually beneficial relationship.