India - Bangladesh: The Economic and Regional Disruption
STORIES, ANALYSES, EXPERT VIEWS
Even as Bangladesh faces a severe political crisis for the first time in nearly five decades, India’s business interests in the country “are being tested,” according to Shibani Mehta (senior research analyst at Carnegie India. Vrinda Sahai is a research assistant at Carnegie India). “Despite the strong historical ties between the two countries, the recent transitions in Dhaka have raised significant questions about the future. The first concern is if these economic relations can act as a stabilising force and pave the way for political normalisation, or if current instability will overshadow any deeper engagement. As Indian businesses grapple with operational disruptions and assess future investments, New Delhi faces a strategic challenge.”
Setback to the FMCG industry
Indian companies are increasingly concerned about transaction delays, disrupted supply lines and operations, and the uncertain investment climate. With widespread political unrest and limited online and physical connectivity ensuing in Bangladesh since July, the Foreign Investors’ Chamber of Commerce and Industry estimated a staggering $100 million setback in the FMCG industry. Industry representatives in India, writes Mehta “have adopted a ‘wait and watch’ approach, reflecting the new power structure’s ambiguous interests and priorities.
Setback to the garments industry
The prevailing uncertainty has also disrupted textiles, garments, and related industry operations with future investments put on hold. Businesses are preparing for possible delays in payment cycles due to unstable banking, which will have a cascading effect on companies, especially those engaged in large-scale manufacturing. Furthermore, the scarcity of raw materials will make import substitution difficult, adding another layer of complexity to the business environment. India’s garment industry, “in particular, which relies heavily on Bangladesh for manufacturing, could see inflationary pressures and demands for wage hikes, further straining bilateral ties.”
Silver lining: In the near term, however, Indian industries are likely to gain. According to experts, if 10 to 11 per cent of Bangladesh’s textile exports shift to alternative markets like Tiruppur, India stands to gain an additional business of $300-400 million per month.
Logistical challenges
However, the ongoing crisis, according to Mehta “has generated significant logistical challenges within India, particularly impacting the eastern states. The necessity to reroute shipments, combined with heightened security protocols, has resulted in increased transportation costs.” Reports suggest that these disruptions have acutely impacted multiple sectors, such as retail and manufacturing, where the timely delivery of goods is essential for operational efficiency. “Subsequently, major importing nations will need to diversify trade patterns and strengthen partnerships with other South Asian nations. It is critical for Indian industries to ensure supply chain resilience by diversifying supply sources and adaptable investments with consistent geopolitical risk monitoring.”
Therefore, “maintaining steady and positive engagement with the regime in power remains crucial. For New Delhi, adopting a pragmatic approach will ensure that its long-term strategic interests, including securing supply chains, are safeguarded.’
Bilateral and multilateral infrastructure projects halted
Mehta notes bilateral and multilateral infrastructure projects in Bangladesh have been halted for the time being because of the law and order situation there. These projects are not only “vital for regional connectivity but symbolise India’s strategic outreach in the region. A prolonged political crisis could jeopardise project completion or render them vulnerable to influence from external players.
“For New Delhi, the annual renewal of the South Asian Free Trade Agreement (SAFTA) and negotiating a Comprehensive Economic Partnership Agreement (CEPA) will be critical. Such frameworks could institutionalise economic ties, making them resilient to political disruptions.”
In the end, “India’s economic and strategic engagement with Bangladesh must go beyond immediate business calculations. It should be driven by a long-term vision that integrates economic resilience, strategic depth, and diplomatic agility, ensuring that New Delhi is not caught off-guard as Dhaka navigates its turbulent political transition.”
