Bangladesh is facing severe political and economic turmoil. The ousting of Sheikh Hasina has intensified existing challenges. High inflation, dwindling foreign reserves, and rising debt are straining the interim government. Student protests have resulted in hundreds of deaths and disrupted economic activity. Recent floods have further exacerbated the situation, impacting 11 districts. Investor confidence is waning. The World Bank predicts a growth deceleration of 4.0% in FY25, denoting sluggish investments and industrial activity.
Political Instability and Economic Impact
The political unrest has created an unstable environment. The interim government struggles to maintain order and economic stability. Protests have led to loss of life and hindered business operations. This turmoil discourages foreign investment. Economic forecasts indicate a challenging future, with the potential for further decline if the situation does not improve.
Dependence on India
Bangladesh relies heavily on India for various resources. It imports 1160 MW of power through cross-border transmission lines. Cooperation in the energy sector is crucial for both nations. Bangladesh plans to import renewable electricity and hydropower from India, Nepal, and Bhutan. Recent infrastructure projects, such as a diesel pipeline from India, demonstrate the interdependence of the two countries.
Economic Challenges and Debt Crisis
Bangladesh’s economy is under important strain. High external debt, currently at $103.8 billion, poses a risk of crisis. A debt-to-GDP ratio of 37.9% raises concerns about sustainability. The textile industry, vital for exports, is struggling. Inflation remains high, driven by food and energy prices. The combination of these factors threatens economic stability and social order.
India-Bangladesh Relations
The interim government is seeking to strengthen ties with India. Recent engagements, including the Third Voice of the Global South Summit, reflect this intent. Bangladesh’s dependence on India extends to essential commodities like rice, wheat, and petroleum. A deterioration in relations could lead to severe economic consequences, including job losses and inflation spikes.
Human Resource Development and Trade
India’s role extends beyond economic support. It is involved in human resource development in Bangladesh. Trade between the two nations reached $15.93 billion in FY 2022-2023. India’s contribution to Bangladesh’s textile sector is important, providing 20-25% of the yarn needed for garment production. This trade relationship is vital for Bangladesh’s economy.
Questions for UPSC –
- Critically examine the impact of political instability on economic growth in Bangladesh.
- Discuss the significance of energy cooperation between India and Bangladesh in the context of regional stability.
- Explain the economic implications of high external debt for Bangladesh’s future development.
- With suitable examples, discuss the role of trade in strengthening India-Bangladesh relations amidst political turmoil.
Answer Hints:
1. Critically examine the impact of political instability on economic growth in Bangladesh.
Political instability in Bangladesh has severely hampered economic growth by creating an environment of uncertainty, discouraging foreign investment, and disrupting business operations. The recent protests have not only led to loss of life but also to an important slowdown in economic activities, as evidenced by the World Bank’s forecast of a 4.0% growth deceleration in FY25. Additionally, political unrest has weakened investor confidence, further exacerbating high inflation and unemployment rates. The inability of the interim government to maintain order and stability poses a risk of prolonged economic stagnation and potential crises.
2. Discuss the significance of energy cooperation between India and Bangladesh in the context of regional stability.
Energy cooperation between India and Bangladesh is crucial for regional stability as it encourages economic interdependence and reduces the likelihood of conflicts. Bangladesh relies heavily on India for electricity, importing 1160 MW and planning to import renewable energy sources. This collaboration not only supports Bangladesh’s energy needs but also strengthens bilateral ties, promoting peace and stability in South Asia. Projects like the diesel pipeline from India enhance energy security and demonstrate India’s commitment to supporting Bangladesh’s development. A stable energy partnership can mitigate tensions and encourage a cooperative regional environment.
3. Explain the economic implications of high external debt for Bangladesh’s future development.
High external debt, currently at $103.8 billion with a debt-to-GDP ratio of 37.9%, poses important risks for Bangladesh’s future development. It limits the government’s fiscal space, making it difficult to invest in essential services and infrastructure. The burden of debt servicing can divert resources from critical development projects, exacerbating social issues like unemployment and inflation. Additionally, reliance on external borrowing can lead to economic vulnerability, especially if global conditions change. A potential debt crisis could destabilize the economy, leading to reduced growth prospects and increased social unrest.
4. With suitable examples, discuss the role of trade in strengthening India-Bangladesh relations amidst political turmoil.
Trade plays a vital role in strengthening India-Bangladesh relations, serving as a stabilizing factor amid political turmoil. With total trade reaching $15.93 billion in FY 2022-2023, India is an important partner for Bangladesh, especially in essential commodities like rice, wheat, and textiles. For instance, India supplies 20-25% of the yarn used in Bangladesh’s textile industry, which is crucial for its economy. This interdependence not only enhances economic ties but also promotes diplomatic relations, making it essential for both countries to maintain cooperation despite political challenges, thereby ensuring mutual benefits and regional stability.
