Will Bangladesh Need India’s Assistance to Ease Its Economic Woes? | Announced

Last Update:12 November 2024 13:51 IST

Bangladesh, which has been hit by high inflation rate, fuel prices, unemployment, rising debts and a crippled garment industry, is dependent on India for its transportation, irrigation and energy needs.

Bangladesh’s external debt was $103.8 billion as of June 2024. (Getty Images)

The political turmoil in Bangladesh following the ouster of Sheikh Hasina in the summer has increased the country’s economic woes so much that high inflation, bleeding foreign exchange reserves, rising debt, high fuel prices and unemployment have put great pressure on the current interim government.

Student protest in July and August not only led to hundreds of deaths but also stifled economic activity. Shortly after the interim government took office, floods occurred in the country due to heavy rainfall and severe damage occurred in 11 districts.

Political and economic instability in Bangladesh has also weakened investors’ confidence in the country. The World Bank projects a slowdown of 4.0% in FY25 due to slowing investments and industrial activities.

So how can India adapt as a messiah in Bangladesh’s difficult times? What exactly can India do to stimulate growth in Bangladesh’s economy? Let’s understand.

Why Is Bangladesh Dependent on India?

Bangladesh needs India not only for the electricity it provides through cross-border transmission lines but also for other capital-intensive projects and to manage its economy.

Bangladesh currently imports 1,160 MW of electricity from India, according to the Ministry of External Affairs. Energy and cooperation in the energy sector have become one of the important pillars of India-Bangladesh relations.

Bangladesh Bank’s newly appointed Governor, Ahsan H. Mansur, had told Bloomberg News that they would stop providing electricity if Bangladesh did not pay dues to Indian power companies.

Bangladesh also wants to import 1,000 megawatts of renewable electricity from India, while it is tied to India for plans to import hydropower from Nepal and Bhutan. Economic Times.

In March last year, Prime Minister Narendra Modi and Sheikh Hasina inaugurated a Rs 377-crore pipeline to transport diesel from India to northern Bangladesh in a bid to reduce costs. Earlier, India was supplying diesel to Bangladesh via 512 km railway line. The 131.5 km pipeline was aimed at supplying up to 1 million tonnes of diesel annually from Numaligarh in Assam to Bangladesh. Of the total 377 billion Rupees cost of the project, 285 billion Rupees of the Bangladesh section of the pipeline was covered by India within the scope of grant aid.

India has also provided various lines of credit (LoC) to Bangladesh worth $8 billion and additional grant assistance for various infrastructure projects, including roads, railways, irrigation, shipping and ports.

“Bangladesh survives on foreign debt. Uncontrolled foreign borrowing has left Bangladesh at risk of a major economic crisis that could fuel ongoing social anarchy in the country. Professor Dr. from New Delhi-based think tank RIS. According to Prabir De, Bangladesh’s economic challenges include loan defaults, poor corporate governance, and increases in fuel and electricity prices.” Economic Times.

Bangladesh’s external debt was $103.8 billion as of June 2024. Debt/GDP ratio was 37.9%. Bankruptcy of Bangladesh could be a major threat to India and the whole of South Asia.

According to the World Bank report, Bangladesh’s inflation due to high food and energy prices averaged 9.7% in FY24. The World Bank expects inflation to remain high in the near term but to gradually decline in the medium term.

Meanwhile, Bangladesh’s textile industry, which accounts for 80 percent of its exports and 15 percent of its GDP, is also being disrupted. India has been a major export partner, accounting for 20-25% of the yarn imported by Bangladesh for garment production.

India is also collaborating on human resources development in Bangladesh as part of its development cooperation efforts.

Total trade between the two countries reached 15.93 billion dollars in the 2022-2023 fiscal year.

How Does Bangladesh Government Reach Out to India?

The interim government, led by Nobel laureate Muhammad Yunus, reached out to Prime Minister Narendra Modi and attended the Third Voice of the Global South Summit hosted by India.

Bangladesh is highly dependent on India for the supply of rice, wheat, onion, ginger, garlic, sugar, cotton, cereals, iron and steel, refined oil, electronic equipment and plastic. Deterioration of relations with India will result in decline in exports, reduction in GDP, high inflation and job loss. Diplomat.

Although the interim government said it would cooperate with India, anti-India sentiments increased along with attacks on the Hindu minority.

Bangladesh Nationalist Party (BNP) General Secretary Mirza Fakhrul Islam Alamgir said that it is very important to start a new page in Indo-Bangla relations, which should start with the extradition of Sheikh Hasina.