India - Bangladesh: China Benefiting from Trade Tensions
STORIES, ANALYSES, EXPERT VIEWS
In an escalation of bilateral trade-related tensions, India recently announced restrictions of readymade garments and other specified commodities from Bangladesh. The Directorate General of Foreign Trade’s announcement targeting Bangladesh’s vital apparel sector sent an unmistakable signal that deteriorating political relations have now spilled over into economic ties. By specifically denying Bangladeshi goods access two India’s northeast market, New Delhi has delivered a Bangladesh’s interim leader, who during his visit to China in March 2025 had invited Chinese access to India’s northeast through Bangladesh, describing the northeast as landlocked.
The move has been welcomed by industry experts who say the ban on imports from Bangladesh through the land ports could generate an additional business of more than ₹1,000 crore for the domestic textile industry. The Director General of Foreign Trade (DGFT) in a notification on May 18, banned imports of garments and several other products from Bangladesh through land routes, but allowed them to be shipped in via Kolkata and Nhava Sheva ports.
The local industry had been demanding restrictions on imports, concerned about a double-digit growth in textile imports from Bangladesh due to zero import duty.
The move is also expected to curb the back-door import of Chinese fabric, which otherwise attracts 20% import duty.
Boost for local manufacturing: The ban on land route imports from Bangladesh may boost local manufacturing, industry insiders said. "We were importing garments worth ₹6,000 crore annually from Bangladesh. We can now expect imports worth ₹1,000-2,000 crore to be replaced with Indian manufacturing," said Sanjay K Jain, chairman of National Textile Committee, Indian Chamber of Commerce (ICC).
Indian companies have been importing woven and knitted apparel from Bangladesh due to the zero-duty advantage.
Supply disruption: All the leading Indian brands as well as the global brands present in India source between 20% and 60% garments from Bangladesh, according to industry estimates. The supply chains of these brands and many MSME units are expected to be disturbed in the short term. "Buyers will be impacted as temporarily their supply chain will be disrupted and would have higher cost and lead time," Jain said.
India looking to attract labour-intensive jobs
According to Ravi Dutta Mishra (Principal Correspondent with The Indian Express, covering policy issues related to trade, commerce, and banking) “New Delhi has decided to restrict garment imports from Bangladesh as it is looking to attract labour-intensive jobs in the sector. This comes as India’s textile sector could see a push due to the free trade agreements. India has already received duty-free access to the UK market for its garment exports and has sought similar access in its trade deals with the EU and US.
Think tank Global Trade Research Initiative (GTRI) said that Indian textile firms have long protested the competitive edge enjoyed by Bangladeshi exporters — who benefit from duty-free Chinese fabric imports and export subsidies — giving them a 10–15 per cent price advantage in the Indian market.
Top global brands like H&M, Zara, Primark, Uniqlo, and Walmart source apparel from Bangladesh, some of which enters India’s domestic market. Indian manufacturers have long expressed concern over the uneven playing field: they pay a 5 per cent GST on locally sourced fabric, while Bangladeshi firms import fabric duty-free from China and receive export incentives for sales to India — giving them an estimated 10–15 per cent price advantage,’ GTRI said.
China’s rising economic clout in Bangladesh
Most of this is working to China’s benefit. China has been rapidly increasing its influence on South Asian countries, particularly Bangladesh. For instance, China has allowed 97 per cent of Bangladeshi goods duty-free access to its domestic market since June 2020. More importantly, it is helping the country diversify its export base and move its industry up the value chain.
According to the Carnegie Endowment for International Peace, the largest number of infrastructure projects developed with Chinese help in South Asia are in Bangladesh. Bangladesh is China’s second-largest buyer of military hardware globally, accounting for almost one-fifth of China’s total exports between 2016 and 2020. Chinese arms make up over 70 per cent of Bangladesh’s major arms purchases, according to a 2020 report by the Stockholm International Peace Research Institute.
According to former trade officer and head of GTRI Ajay Srivastava, ’The fall of Sheikh Hasina’s pro-India government in mid-2024 and the rise of an interim administration under Muhammad Yunus have brought a willingness to align with Beijing. Yunus’s visit to China in March 2025 yielded $2.1 billion in new investments and cooperation agreements. China’s involvement in sensitive infrastructure projects like the Teesta River development marks a growing strategic footprint — posing a direct challenge to India’s influence in the region.’
Trade restriction will do little to aid New Delhi’s strategic interests
The important point to note is that while India’s discomfiture about Bangladesh-China discussions regarding India’s northeast is understandable, the trade restriction, according to The Hindu “may hurt Bangladeshi businesses, largely dependent on garment export, but will do little to aid New Delhi’s strategic interests……The imperative for New Delhi must be to come up with a deft outreach to other political parties in Bangladesh as they prepare for elections….”
New Delhi must also advise the regime to conduct elections quickly. “A political gesture of this nature while engaging with multiple stakeholders in Bangladesh’s polity is more appropriate than using restrictive moves related to trade, as this would only heighten the anti-India sentiment being fanned by some elements in Bangladesh after the Awami League government’s exit. Such radical elements, many of whom have little investment in the restoration of democratic processes, could also create fresh law and order problems that could lead to security issues in the northeast……”
Bangladesh plunging into a downward spiral, just like Pakistan
There is a lot more advise that India can give to the Bangladesh interim government.
For example, two weeks ago, the cabinet banned the Awami League. The League may be deeply unpopular at the moment, but, writes Mihir Sharma of Bloomberg, “it nevertheless can claim to represent the beliefs of a large part of the country. It has a long and storied history, and is older than the nation it helped found. The party was the primary conduit for the nationalist impulses that eventually led to East Pakistan splitting away from the autocratic rule of West Pakistan’s generals and becoming Bangladesh. Banning the Awami League is like banning Bangladesh’s history…..
“This has only strengthened global worries that Yunus’s government is too dependent on Islamists determined to alter the character of the Bangladeshi state — particularly its commitment to religious freedom, a principle with which the Awami League was closely identified….”
With the Awami League out of the way, and the largest Islamist party restored to full legal status, Sharma emphasises “the worst-case scenario seems far more plausible. Internal turbulence, attacks on members of religious minorities, and a confrontational foreign policy are a more likely outcome. This will be a disaster for Bangladesh’s people, who had just begun to pull themselves out of grinding poverty. The country needs secure foreign markets for the garment exports that finance its development, and the internal stability that calms investors. Without these, it will descend into a spiral of de-growth and destabilisation of the sort that has consumed Pakistan…..”
