NEW DELHI – A global trade war would appear to be an opportune time to promote economic unity in South Asia.
Instead, Bangladesh and India are mired in a mini trade war, with the former having much more to lose, because of its greater reliance on exports.
On the recommendation of the country’s commerce ministry made on March 27, Bangladesh’s National Board of Revenue suspended the import of yarn from India through five land ports, including Benapole and Bhomra, from April 13. Indian yarn can now be imported only through sea routes, which is more expensive for yarn sent through northern India.
The decision by the Bangladesh government comes on the back of complaints by the country’s textile millers of unfair competition from cheaper Indian yarn, as well as smuggling.
In response, India withdrew transshipment facilities for Bangladesh on April 8.
Unlike Asean, South Asia has struggled with economic integration, with the latest trade spat underlining how poor political ties among neighbours continue to hamper trade relations even at a time of global trade uncertainty brought on by impending US reciprocal tariffs.
Bangladesh is trying to negotiate its way out of a 37 per cent US reciprocal tariff, while India, which was hit with a 26 per cent tariff, hopes to negotiate a bilateral trade agreement with the Trump administration.
The transshipment facility, offered in 2020, allowed Bangladesh to export goods to other countries using Indian land Customs stations, ports and airports. The April 8 order exempts Bangladesh’s exports to Nepal and Bhutan.
Mr Randhir Jaiswal, a spokesman for India’s Ministry of External Affairs, said at a press briefing on April 17 that India had suspended the transshipment facility because of “congestion at our ports and our airports”.
According to the Bangladesh Garment Manufacturers and Exporters Association, garments worth US$462 million (S$606 million) were shipped through India to 36 countries between January 2024 and March 2025.
The Dhaka Tribune reported that lorries were sent back from the land border after India withdrew transshipment facilities.
But Mr Jaiswal also said: “Please do have a look at the developments that have happened on the Bangladeshi side prior to us announcing these measures.”
Indian government sources said the process to implement restrictions on Indian yarn imports, in addition to greater scrutiny at land ports by Dhaka, had preceded India’s decision to stop transshipment rights.
The import restrictions are also having an impact on India.
According to the Confederation of Indian Textile Industry, India exported cotton yarn worth US$3.57 billion in 2024, with Bangladesh accounting for 45.9 per cent of total cotton yarn exports, making it the largest export destination.
“People have had to reschedule logistics. It’s cheaper and faster by road. The cost increases for everyone on this side and the other side,” said Dr Siddhartha Rajagopal, executive director of India’s Cotton Textiles Export Promotion Council.
He noted that the land route provides an efficient alternative when buyers in Bangladesh require smaller quantities of yarn or speciality yarns faster.
Ready-made garment manufacturers and exporters in Bangladesh are also unhappy with the closure of the land route for yarn imports, as it will raise their costs. They have also asked India to restore the transshipment facilities.
Trade between India and Bangladesh in the financial year 2023-2024 was valued at US$13 billion. India had a trade surplus of US$9.2 billion. Among its key exports to Bangladesh were textiles, including cotton yarn, refined petroleum and machinery, apart from electricity.
Analysts in Bangladesh said transshipment restrictions in particular are a setback for the country, where garment exports account for 11 per cent of gross domestic product.
“This (transshipment) facility, established in 2020, was instrumental in facilitating Bangladesh’s exports via Indian ports and airports,” said Professor Selim Raihan, an economist at the University of Dhaka in Bangladesh.
“The withdrawal is expected to increase logistical costs and disrupt trade routes. Indian authorities cited congestion and inefficiencies as reasons for the decision, but it may also reflect broader geopolitical tensions.”
During a visit to China in March 2025, the chief adviser to Bangladesh’s interim government, Dr Muhammad Yunus, urged Beijing to view Bangladesh as the “guardian of the ocean” because of its position at the head of the Bay of Bengal.
He also offered the use of his country to extend trade ties to India’s north-east, raising hackles in New Delhi.
The north-east is connected to the Indian mainland by what is called the Chicken’s Neck, a strip of land 22km wide at its narrowest. India, which has border troubles with China, would see any Chinese presence near this strip of land as a security risk.
Ties between India and Bangladesh have been chilly since a popular uprising ousted then Prime Minister Sheikh Hasina, a longstanding Indian ally. She fled to India, where she remains.
New Delhi and Dhaka have been unable to agree on multiple issues, including the safety of Hindus in Muslim-majority Bangladesh.
The rift between the neighbours has been further exacerbated by Bangladesh’s overtures to China, its biggest trading partner.
Even a meeting between Prime Minister Narendra Modi and Dr Yunus on April 5 has not arrested the growing distrust, which is also exacerbated by Bangladesh’s outreach to Pakistan.
India and Bangladesh have both accused each other of not protecting minorities in their respective countries.
India’s Ministry of External Affairs on April 19 condemned the alleged abduction and murder of a Hindu community leader identified as Bhabesh Chandra Roy in Bangladesh on April 17. Mr Jaiswal said the “killing follows a pattern of systematic persecution of Hindu minorities under the interim government”.
“The main concern (with Bangladesh on India’s side) is more on the strategic and political front. India will certainly be watching Bangladesh, China and Pakistan (relations) very closely,” said Professor Sanjay Kathuria, a visiting senior fellow at the Centre for Social and Economic Progress, an independent public policy think-tank in India.
“Every country has its red lines, and for India the red line is security. Yunus’ remarks (to China) have not been helpful.”
But he noted that it is incumbent on India, as the larger neighbour, to take the higher road and ensure ties do not worsen. “There are no winners on the trade front. Trade is not a zero-sum game. Bangladesh simply cannot afford to not trade with full horsepower when it comes to India. It’s a massive market and hugely under-exploited from Bangladesh’s point of view.”
The prevailing sentiment among businesses is that ties need to improve between India and Bangladesh, which together comprise a market of more than 1.6 billion people.
“We should do more business within the region. We shouldn’t depend on the Western world. Relations between India and Bangladesh should be closer,” Bangladesh Garment Manufacturers and Exporters Association president Faruque Hassan told Indian news agency Asian News International.
- Nirmala Ganapathy is India bureau chief at The Straits Times. She is based in New Delhi and writes about India’s foreign policy and politics.
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