Making a Trade-Friendly Border.

In the next few days, Prime Minister Manmohan Singh will undertake an official visit to Bangladesh. This visit assumes importance as it provides an opportunity to the two neighbours to redeem the pledges that they had made to promote bilateral economic relations during the January 2010 visit of Bangladesh’s Prime Minister Sheikh Hasina. Few will deny that strengthening of relations at the bilateral level forms the basis for the emergence of a dynamic and resilient South Asia.

There is no doubt that the onus of taking India-Bangladesh relations to a higher plane lies on India. In fact, in recent years, India has increasingly played its part as one of the strong and stable economies to contribute to the development programmes of its lesser developed neighbours. It was in this spirit that Singh had announced during Hasina’s visit a line of credit of $1 billion for upgrading Bangladesh’s railway infrastructure and rolling stock and assistance in dredging projects, among others.

Another significant decision taken by the two leaders was to establish “border haats”, on a pilot basis at selected areas, including on the Meghalaya border, to allow trade in specified products. Although this decision could be implemented only recently, the setting up of the “border haats” marks a big stride forward towards connecting the population of the two countries residing in the border areas. It needs to be emphasized that the two governments must take measures to help develop economic activities in the border areas by giving legitimacy to the “border trade” that currently takes place through informal/illegal channels. A large volume of this trade is not recorded in official statistics, and as a result, policymakers are unable to comprehend the real magnitude of India-Bangladesh trade.

Officials need to recognize that informal trade reflects to a large measure the historical links existing between the populations on both sides of the border, and the advantages of such links, which were interrupted when political boundaries were redrawn, need to be harnessed. Besides providing greater economic opportunities to people involved in these activities, promoting informal trade at the border would necessarily result in greater people-to-people contact. But above all, informal trade could bring with it greater sense of ownership among the people in the border areas and could contribute immensely to the process of peaceful co-habitation in these areas.

Trends in official trade between the two countries need close attention, for not only have India’s imports from Bangladesh remained at a relatively low level, these low volumes of imports have also contributed to the large and growing trade imbalance faced by Bangladesh. India’s merchandise trade surplus with its neighbour has increased from about $2.7 billion in 2007-08 to over $3.1 billion in 2010-11. This increase has taken place despite the fact that during 2010-11, India’s imports from Bangladesh have increased by almost one-third as compared with the level recorded a year earlier.

More recently, India has tried to address this problem of trade imbalance by granting import quotas for ready-made garments (RMG) produced in Bangladesh. It was expected that enhanced imports of the product in which Bangladesh has an overwhelming export interest (RMG account for more than three-fourths of its exports) would help reduce the trade deficit. When India took this initiative in 2008, the import quota was eight million pieces of RMG annually. In April this year, commerce minister Anand Sharma announced an increase in this quota to 10 million pieces. This increase was timely for there has been a substantial increase in quota utilization in recent months. According to the Export Promotion Bureau of Bangladesh, 2010-11 saw a steep increase in apparel exports to India. One estimate indicated that there is a pending demand of 10 million pieces of RMG export to India, which cannot be met due to lack of quota limitation. These developments suggest that there is a case for at least further increase in India’s import quotas, if not making apparel imports from Bangladesh duty- and quota-free.

Part of the problem Bangladesh faces in its trade relations is the narrow base of its exports. In other words, the country needs to think in terms of the measures that are necessary to address its supply-side rigidities in a range of sectors that constrict its ability to export. This is where India can play an important role by supporting the establishment of trade-creating investments in Bangladesh. The focus of such an effort should be on small and medium enterprises that can easily be set up in sectors such as processed foods, marine products and light engineering. In all these areas, India has considerable expertise that can be utilized in good measure.

India-Bangladesh collaboration should not merely look to establish these enterprises; it should focus on making them function in a viable manner by being a part of production networks. These production networks are already established in the area of textiles and clothing where India’s yarn is utilized by the Bangladeshi apparels industry. Possibilities of developing similar production networks between India and Bangladesh exist aplenty: Working on the modalities for establishing these networks is what the governments must focus on.

Source : livemint.com