Bangladesh-India Trade Imbalance: A Perspective
Asadul Islam
Graduate Student in Economics
University of Saskatchewan, Canada
e-mail: [email protected]

Bangladesh and Indian commerce secretary level talk are going to take place in New Delhi on 24th and 25th of this month regarding bilateral trade. Bangladesh is concerned, for quite a long time, is its persistent and unfavorable trade deficit with India. The Bangladesh's trade deficit ballooned to about a billion in recent years(971.52 million dollar in 2001-02) from $53.3m in 1985.Bangladesh has been pushing India to narrow down the huge trade imbalance and so expecting greater market access to India of its products. In this context Bangladesh has requested to India, in different levels, for tariff exemptions on 191 items, of which India agreed to 40. But the duty-free access to 40 items will not make much difference considering the size of the trade imbalance and the demand for those categories of product in Indian market. In the past, Bangladesh referred to the non-tariff barriers faced by some of its exports to India, in general, and to West Bengal in particular.

Bangladesh can reduce its trade imbalance in different way. It can press more India on the customs, tariff concessions and associated administrative procedures to facilitate unhindered flow of trade between the two countries and to address these issues on a priority basis. We need to negotiate more with the Indian government on luxury tax levied by Indian government on some Bangladeshi exports and take strict measures on dumping of Indian goods into Bangladesh market at highly reduced price.

We must remember that India would import such products if it has demand for it. Bangladeshi businessman should look forward to Indian market for which India make demands. Given the nature of Bangladesh’s export and its dependence on the Ready Made Garments (RMG) sector, it’d not be easy to reduce the trade deficit significantly without altering the Bangladesh’s export bundles and relative efficiency in producing the goods and services to be exported.

As a whole, Bangladesh should be more interested to look at its overall trade balance. In this globalized world, we need not worry much about trade deficit with a particular country as long as we can maintain its optimum trade balance with the rest of the world caring satisfactory foreign exchange reserve. Bangladesh has also staggering trade imbalance with countries like China, Japan or South Korea. However, a huge trade deficit with one country like India is not at all desirable as Bangladesh may be in a vulnerable situation in the event of any shock in India.

The most important thing that the government can do to reduce its overall trade deficit and in particular trade deficit with India is to trim down its budget deficit. Government budget deficits and trade deficits are linked, the larger a country’s budget deficit, the larger its trade deficit. Government is running up large budget deficits during the past decades without a corresponding increase in private saving relative to investment. It might be interesting to interpret the rhetoric on both sides concerning massive trade imbalance between the Japan and the United states. Japan needs a trading surplus in manufactured goods to finance its trade deficit in the area of primary commodities (which Japan must import, given its natural geography). But the United States is concerned about the large magnitude of the net surplus Japan has in the trade between the two nations. American politician argue that the Japanese should raise the government spending to stimulate Japanese imports from the United States and to force a government budget deficit there. Given the connection between the twin deficits, this would help reduce the U.S trade deficit, without the Americans’ having to make painful choice by them.

Since India is the Bangladesh’s major source of import, an increase in the government spending will deteriorate the trade imbalance with India and so Bangladesh government should direct its expenditure keeping its budget deficit at a minimum without sacrificing the capital accumulation and future living standards within the country. Furthermore the issue of trade balance with India has assumed emotional scale to a certain degree although it should not be viewed with emotions. Therefore the government should maintain the budget deficit at an acceptable level and create facilities, infrastructure to boost up its export, help injecting more domestic and foreign investment into the economy. A failure to do so would imply the loss of country’s future potential and sacrificing the future generation’s consumption possibility.