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Agricultural Trade Between Bangladesh and India

Mustafizur Rahman
Professor and Executive Director
Centre for Policy Dialogue (CPD), House 40/C, Road 32, Dhanmondi R/A Dhaka 1209, Bangladesh

Mazbahul Golam Ahamad
Research Associate
Centre for Policy Dialogue (CPD), House 40/C, Road 32, Dhanmondi R/A Dhaka 1209, Bangladesh

A K M Nazrul Islam
Former Research Fellow
Centre for Policy Dialogue (CPD), House 40/C, Road 32, Dhanmondi R/A Dhaka 1209, Bangladesh

Muhammad Al Amin
Senior Research Associate
Centre for Policy Dialogue (CPD), House 40/C, Road 32, Dhanmondi R/A Dhaka 1209, Bangladesh

Abstract/ Executive Summary:

The paper investigates the evolution of agricultural trade policy, trends, trading patterns and determinants of bilateral agriculture trade between Bangladesh and India. The trends of bilateral trade flows bear out that India has continued to remain an important trading partner for Bangladesh, both in terms of overall trade flows as well as trade in agricultural commodities. Despite the significantly large bilateral trade deficit with India, Bangladesh’s exports to the Indian market have experienced robust growth in recent years, particularly over the past five years. In parallel, Bangladesh’s import from India has also been on the rise over the corresponding period with the resultant rising bilateral trade deficit. Analyses of trends and trading patterns undertaken in the present study reveal that the demand for Bangladeshi agricultural commodities such as jute and jute products, fruit juice, vegetable items and agro-based products have evinced rising trends in the Indian market in recent years. This is particularly true with regard to the North-Eastern states of India. In particular, this trend has been clearly visible since 2004 when significant positive changes were experienced through growing diversification of the agricultural export basket of Bangladesh. Bangladesh’s imports of agricultural commodities such as onion, wheat and rice from the Indian market have also seen a rapid rise over the corresponding period. It was observed in the paper that changes in trade pattern depends significantly on trade policy changes in such areas as tariff and para tariff rates, NTBs and trade facilitation measures. Bangladesh has reduced her agricultural tariffs significantly since the 1990s, although the level of her para tariffs applicable to certain products remained high.32 However, in most cases the tariffs on agri-items were found to be lower in Bangladesh when compared to those of India. Coffee, tea and spices, sugar and sugar confectionery products exported by Bangladesh faced tariff rates of different ranges in India. The need to ensure compliance with India’s SPS measures-related requirements oftentimes constrain market access in view of weak state of capacity in Bangladesh to address the attendant issues. Furthermore, India’s wide-ranging ‘sensitive list’ was also one of the key constraints inhibiting the expansion of Bangladesh’s agricultural exports to India.33 This obstacle, however, has now been removed through India’s offer of duty-free access to all exportables from Bangladesh. In view of these recent developments, it will be the non-tariff barriers which will play a critically important role in determining Bangladesh’s ability to realize the potential opportunities of Indian offer and export of these items to India. In view of the duty-free access offered by India, attracting Indian investment to Bangladesh, targeting the Indian market of agri-items, taking advantage of the preferential market access, remains a promising possibility. Now that India has allowed investment from Bangladesh in the North-East region, there is a possibility to set up agri-manufacturing facilities, by Bangladeshi entrepreneurs, in this region. This could also deepen bilateral trade cooperation in agri-items between the two countries. Bangladesh’s policymakers should give higher priority to increasing domestic agricultural production and supply-side capacities in items which have already demonstrated their export potential in the Indian market. In this regard, closer collaboration between research institutions of Bangladesh and India will enable Bangladesh to access modern agricultural technology from India and benefit from technology transfer. This would lead to productivity gains and increased competitiveness of her agricultural exports which is crucial to Bangladesh’s ability to take advantage of the duty-free access of agri-items in the Indian market.

Keywords: Macroeconomic, Poverty, Inequality, Agriculture, Trade, Regional cooperation, Global integration, Infrastructure Climate change, Environment, Human development, Development governance, Policies, Institutions

Location: In Bangladesh

Start Date:

End Date:

Program Area: Comparative study

Commodity: Poverty, Trade, Climate change, Environment

Objectives:

The specific objectives of the study are: i) to document the evolution of agricultural trade policies, both in Bangladesh and India; ii) to analyze the trends and patterns of agricultural trade between Bangladesh and India; iii) to identify the major determinants of bilateral agricultural trade (export supply and import demand) between Bangladesh and India; and iv) to suggest policy measures in the area of agricultural trade with a view to enabling Bangladesh to address the volatility in the global agricultural market.

Methodology:

The present review of the evolution of trade policy in Bangladesh and India refers to major phases of trade policy changes in both the countries and also the current trade regimes in these countries. Trade policy changes are documented in three sub-sections: i) trade policy changes in Bangladesh; ii) trade policy changes in India; and iii) changes in tariff rates and protection measures in agricultural trade between Bangladesh and India. The section puts emphasis on analyzing the changes in agricultural trade policies of both countries. Trends and patterns of bilateral agricultural trade between Bangladesh and India have been analyzed by making use of agricultural trade data from 1989 to 2007. Depending on the availability, in some cases, data has been analyzed up to FY2009-10. The section includes information on the changes in trend, pattern and composition of overall as well as agricultural trade between Bangladesh and India. The analysis identifies some of the most traded agricultural commodities and their positional shifts over time. Finally, a number of scenarios have been put forward to indicate possible changes in the trends and patterns of Bangladesh-India agricultural trade in the coming years. The study employed ARDL bound F-test for estimating the determinants of bilateral agricultural export supply and import demand between Bangladesh and India. In estimating the major determinants of bilateral agricultural export supply and import demand with its long-run and short-run elasticities, an ARDL bounds F-test model was considered to be an effective method given its strengths over other available econometric methods in this respect.4 After careful consideration of interrelationship among various bilateral agricultural export supply and import demand variables, this study finally considered total agricultural production in Bangladesh and India, Consumer Price Index (CPI) of Bangladesh, bilateral real exchange rate and the role of SAPTA agreement, as major determining factors for the long-run and short-run bilateral agricultural export supply and import demand5 between Bangladesh and India.⁶ For documentation of the overall trade policy changes in addition to the changes in agricultural trade policies, both in Bangladesh and India; related trade policy documents including export-import and comprehensive trade policies were collected from the Ministries of Commerce and Industries of the respective countries. Trade policy reviews (WTO 2007a) available on the WTO website were also surveyed for the purpose of the analysis. Tariff data used in the study were accessed from Trade Analysis and Information System (TRAINS) database whereas para tariff and other non-tariff data were taken from different published and web sources along with published working papers. In addition, for analyzing the trends and patterns of Bangladesh-India agricultural trade, the study has used agricultural trade data for the period of 1989 to 2007 extracted from UN Comtrade (2010) by using World Integrated Trade Solution (WITS).12 Agricultural products are identified at the HS 2 and HS 6 digit levels for all commodities mentioned in Chapters 1 to Chapter 24 of the Harmonized System of Coding (HS), including jute and jute products reported in Chapter 53. In some instances, related data has been reported up to 2010; this information has been taken from Annual Export Receipts (AER) and Annual Import Payments (AIP) reports published by the Bangladesh Bank. Finally, for estimating the determinants of Bangladesh-India agricultural trade (export supply and import demand) using ARDL Bound F-test, the study have used data extracted from UN Comtrade (2010) and Bangladesh Bank.

Source of Information: CPD-CMI Working Paper 3

Article Link (Online Journal):

Funding Source:

1.

Budget:

Total Budget (Tk.) :

Achievement/Findings:

The paper investigates the evolution of agricultural trade policy, trends, trading patterns and determinants of bilateral agriculture trade between Bangladesh and India. The trends of bilateral trade flows bear out that India has continued to remain an important trading partner for Bangladesh, both in terms of overall trade flows as well as trade in agricultural commodities. Despite the significantly large bilateral trade deficit with India, Bangladesh’s exports to the Indian market have experienced robust growth in recent years, particularly over the past five years. In parallel, Bangladesh’s import from India has also been on the rise over the corresponding period with the resultant rising bilateral trade deficit. Analyses of trends and trading patterns undertaken in the present study reveal that the demand for Bangladeshi agricultural commodities such as jute and jute products, fruit juice, vegetable items and agro-based products have evinced rising trends in the Indian market in recent years. This is particularly true with regard to the North-Eastern states of India. In particular, this trend has been clearly visible since 2004 when significant positive changes were experienced through growing diversification of the agricultural export basket of Bangladesh. Bangladesh’s imports of agricultural commodities such as onion, wheat and rice from the Indian market have also seen a rapid rise over the corresponding period.

Knowledge Management: Report/Proceedings