India Revokes Transshipment Facility for Bangladesh Trade

India formally revoked a transshipment facility that allowed Bangladesh to export goods to third countries via Indian land customs stations. This decision, effective from April 8, ended a nearly five-year agreement established in June 2020. The withdrawal is expected to impact Bangladesh’s trade logistics and costs, especially for exports aimed at Western markets.

Transshipment Agreement Overview

The transshipment facility was introduced in June 2020 by India’s Central Board of Indirect Taxes and Customs. It enabled Bangladeshi exporters to transport goods through Indian territory to reach third-country destinations. This included passing through Indian Land Customs Stations to various ports and airports, such as Indira Gandhi International Airport in New Delhi. The initiative aimed to enhance regional connectivity and trade cooperation, providing Bangladeshi exporters with an alternative route to global markets while utilising India’s logistical infrastructure.

Reasons for Revocation

India cited logistical challenges as the main reason for revoking the transshipment facility. Significant congestion at Indian airports and ports arose from the arrangement, leading to delays and increased costs. Randhir Jaiswal, spokesperson for the Ministry of External Affairs, noted that these logistical issues hindered India’s own export processes, creating backlogs. The decision to withdraw the facility follows ongoing tensions between India and Bangladesh, exacerbated by recent political developments in Bangladesh.

Bilateral Relations Between India and Bangladesh

Relations between India and Bangladesh have deteriorated since the ousting of former Prime Minister Sheikh Hasina’s government in August 2024. The interim government led by Muhammad Yunus has faced criticism from India regarding the treatment of minorities in Bangladesh. Tensions escalated further when Yunus made remarks about China’s economic involvement in India’s northeastern states, suggesting Bangladesh’s strategic importance for India’s ocean access. Such statements have been interpreted as a leverage tactic, aggravating the already strained bilateral relations.

Impact on Bangladesh’s Trade

The revocation of the transshipment facility is expected to increase logistics costs for Bangladeshi exporters. The smooth flow of goods to global markets, especially in Europe and West Asia, may be compromised. The decision could lead to a re-evaluation of trade strategies for Bangladesh, as exporters will now need to seek alternative routes that may not be as efficient as the previously available Indian route.

Future Implications

The withdrawal of the transshipment facility may have long-term implications for regional trade dynamics. It marks the interconnectedness of trade relationships and the impact of political tensions on economic agreements. As Bangladesh seeks to maintain its export levels, the need for diplomatic engagement with India will be crucial for future trade arrangements.

Questions for UPSC:

1. Critically discuss the implications of India’s decision to revoke the transshipment facility on Bangladesh’s economy.
2. Examine the political factors that have contributed to the deterioration of India-Bangladesh relations in recent years.
3. Analyse the role of trade agreements in encouraging regional cooperation among South Asian countries.
4. Estimate the potential impact of increased logistics costs on Bangladesh’s export competitiveness in the global market.

Answer Hints:

1. Critically discuss the implications of India’s decision to revoke the transshipment facility on Bangladesh’s economy.

1. Revocation disrupts established trade routes, increasing logistics costs for Bangladeshi exporters.
2. Export delays may lead to reduced competitiveness in Western markets, impacting overall economic growth.
3. Bangladesh may need to explore alternative shipping routes, which could be less efficient and more costly.
4. Potential loss of trade volume could affect employment in export-oriented sectors.
5. Long-term economic relations with India may be strained, affecting future trade agreements.

2. Examine the political factors that have contributed to the deterioration of India-Bangladesh relations in recent years.

1. Political instability in Bangladesh, marked by the ousting of Sheikh Hasina’s government, has caused tensions.
2. Concerns over minority treatment in Bangladesh have raised alarms in India, straining diplomatic ties.
3. Recent remarks by Bangladeshi leaders about leveraging China’s economic involvement have aggravated India.
4. Regional security concerns, including rising radical elements in Bangladesh, have further complicated relations.
5. Historical disputes and differing national interests continue to influence bilateral dynamics.

3. Analyse the role of trade agreements in encouraging regional cooperation among South Asian countries.

1. Trade agreements facilitate smoother trade flows, reducing tariffs and encouraging economic interdependence.
2. They enhance regional connectivity, allowing countries to leverage each other’s logistical strengths.
3. Agreements can promote peace and stability by creating mutual economic benefits among nations.
4. Regional cooperation through trade can lead to collaborative efforts in addressing shared challenges.
5. Successful trade agreements can serve as a foundation for broader political and social cooperation.

4. Estimate the potential impact of increased logistics costs on Bangladesh’s export competitiveness in the global market.

1. Higher logistics costs may reduce profit margins for exporters, making products less competitive.
2. Increased shipping times can lead to delays, affecting timely deliveries and customer satisfaction.
3. Exporters may face challenges in maintaining market share in price-sensitive markets like Europe.
4. Dependence on alternative, potentially less efficient routes could further inflate costs.
5. Long-term impacts may include a shift in export strategies and potential diversification of markets.