India-Bangladesh trade row rattles key industries

Businesses in both India and Bangladesh are facing growing uncertainty as bilateral tensions escalate into a trade standoff.

Last month, Bangladesh restricted land imports of Indian cotton yarn to protect its domestic industry. In a retaliatory move, India halted a key transhipment facility that enabled Bangladesh to export goods via Indian ports and airports, citing congestion.

Relations have worsened since the ousting of former Prime Minister Sheikh Hasina in August following mass protests. Now in exile in India, Hasina faces charges in Bangladesh including crimes against humanity and corruption — all of which she denies. Dhaka has formally requested her extradition, but Delhi has yet to respond.

Tensions were further inflamed after India condemned the recent killing of a Hindu leader in Bangladesh, alleging a broader pattern of minority persecution — a claim Dhaka denies. Hindus account for less than 10% of Bangladesh’s population.

The trade disruption is already affecting Bangladesh’s vital garment industry. Though yarn imports continue via air and sea, the loss of cheaper land routes is driving up costs and delays. India exported $1.6 billion worth of cotton yarn to Bangladesh in 2024, with a third via land.

The suspended transhipment facility had been crucial for Bangladesh’s fast-fashion exports, enabling rapid delivery to Western markets. “By road and air via India, goods reached the West in a week. Now it could take up to eight weeks by sea,” said Anis Ahmed of MGH Group.

Over $1 billion in garment exports used the India land-air route last year. With Bangladesh’s limited airport capacity, direct shipments are now strained.

Observers link India’s actions to recent remarks by Bangladesh’s interim leader Muhammad Yunus during a China visit, where he described Bangladesh as a maritime “guardian” for India’s north-east and suggested the region could integrate economically with China.

India’s north-eastern leaders reacted strongly, calling the comments “offensive.” The region is linked to mainland India by the narrow and strategically sensitive Siliguri Corridor. Yunus also welcomed Chinese interest in the Teesta River development project near this zone, raising Indian security concerns.

Meanwhile, visa approvals for Bangladeshis visiting India have plummeted by over 80 percent, fuelling public frustration.

India has not commented on Hasina’s extradition, but analysts say any such move would be politically unfeasible. “There’s no way India can hand her over. Public opinion would not support it,” said former Indian foreign secretary Shyam Saran.

Indian textile groups are now lobbying for a ban on Bangladeshi garments, while Bangladeshi economist Debapriya Bhattacharya urged a rethink on transit privileges India enjoys through Bangladesh.

Amid souring ties, Dhaka is also re-engaging with Pakistan. Last month, Pakistan’s foreign secretary visited Bangladesh — the first such visit in 15 years.

Analysts warn that escalating rhetoric and trade restrictions could jeopardise regional cooperation. People-to-people ties are already weakening as nationalism and suspicion rise on both sides.