‘Time for Bangladesh to take more focussed approach to Indian FDI’

In June 2015, when the Bangladeshi Prime Minister Sheikh Hasina announced the creation of two special economic zones (SEZ) for Indian companies, it marked a major policy shift by Dhaka, which had for long been tepid towards Indian FDI.

Mashiur Rahman, Hasina’s economic advisor, feels Bangladesh should take a more focussed approach to attract Indian FDI and take full advantage of the recent cooperation overdrive between the two nations.

“We expected Indian FDI but to do that, our industry-related policies, including taxation, duty, etc needed to be fine tuned. But, it couldn’t be done (as we had) to protect interests of local (small) industries,” he told BusinessLine in an exclusive interview in Dhaka recently.

That strategy cost Dhaka. It fared poorly when compared to a Sri Lanka, in attracting Indian investments. Even tiny Nepal did relatively better.

The India-Bangladesh relationship has been started improving since 2009-10.

According to Care Ratings, in the four years that followed, Indian companies invested over $50 billion overseas, of which Dhaka got a negligible $142 million.

Though investments have more than doubled in the last two years, the flow is still minimal. The prominent Indian investments in the country are from Airtel, Marico, Godrej and VIP Industries.

Ceat Tyres is setting up a facility through a majority joint venture with AK Khan & Co (AKK) of Dhaka.

According to AKK, the 110 tonne-per-day facility will be ready in two years at an estimated cost of $67 million and a ‘minimum’ 35 per cent of products will be exported to India. Salahuddin Kasem Khan, MD of AKK, says the plant will cater to east Indian markets.

Rahman, the Prime Minister’s advisor, is bullish about such export-oriented investments as a remedy to Bangladesh’s lopsided balance of trade with India.

VIP industries, he says, meets Indian demand from the plant in Bangladesh’s only SEZ at Mongla.

He is also hopeful about Indian investments in healthcare.

Fortis, he says, proposed to build five speciality hospitals for cardiac and cancer patients at Khulna, Comilla, Shylette and Dhata (two) through joint ventures.

This will not only save forex outgo on heath tourism to India but the hospitals at Comilla and Shylette are expected to attract Indian patients from Tripura and Assam, as well.

Meanwhile, co-operation initiatives are opening up opportunities for infrastructure companies. L&T is building three gas-based power plants for Bangladeshi generation companies in Bheramara (360MW), Sikalbaha (225 MW) and Bibiyana (400 MW).

Rahman says the infra major has also got a contract for constructing a new airport near Mongla port.

More opportunities will open up in the port infrastructure segment.

While India is expected to be a part of the international consortium to build a new deep-sea port at Payra, Chittagong port needs a revamp before the north-eastern States start accessing it.

The port now suffers from capacity bottlenecks and lack of warehousing infrastructure.

This apart, Dhaka is also planning to build a river port at Ashugunj using a line of credit from India. Located on the Tripura border, the port will cater to the demands of North-East India and the adjoining Bangladeshi districts.

Dhaka is also moving ahead with a number of broad-gauge rail projects to ensure port as well as regional connectivity.

The country is aiming to widen the scope of industrialisation beyond ready-made garments.

But, in order to enhance economic activity, it needs to carry out wide-ranging reforms. Dhaka has set highly protectionist rules for investment in the pharmaceuticals sector.

The government is still hesitant to the open doors to the private sector in the ports, roads and airports sectors. But, the most important reform is awaited in the banking sector.

Due to an inadequate project appraisal mechanism and political interference, private banks restrict their lending operations to trade finance, leading to excess liquidity and falling returns to depositors.

PSU banks extend project finance but at the cost of their balance sheets.

“This is an anomalous structure and needs deep reforms,” says Rahman. But the country is not yet ready to undertake it, he adds.