Economic renaissance in the East

A silent revolution is under way along India’s eastern border that can change the economic landscape of the region. After years of dialogue, mostly futile or ineffective, India is fast stepping into an era of cooperation with the East, with Bangladesh as a key partner.

Suddenly, things are moving at a rapid pace. For example, Ceat Tyres is setting up a plant in Bangladesh that will take advantage of zero-duty imports to cater both sides of the border. The Hiranandani Group is planning a floating LNG terminal along the coast that will cater to the demand for gas on either side through a cross-border pipeline.

The motor vehicles agreement between Bangladesh, Bhutan, India and Nepal (BBIN) was signed in six months flat. The proposal was mooted in end-2014 owing to Saarc’s (South Asian Association for Regional Cooperation) vacillation over entering into a regional transport and transit treaty. The BBIN agreement was in place in June 2015. Even before the modalities were finalised, Dhaka allowed a passenger bus service between Kolkata and Agartala in the North-East, reducing the distance by 1,000 km. India is now pushing a similar deal with Myanmar and Thailand (IMT).

Saarc could never match this speed. In its three decade-long existence, the regional group’s achievements are practically limited to the South Asian Free Trade Area agreement (2004) and a framework agreement for energy cooperation (2014). Though implemented in 2006, Safta failed to take off due to a high wall of sensitive lists put out by member countries, except India. A rough assessment suggests that barely a quarter of the regional trade takes place through this route.

One-and-a-half years since entering the energy deal, Saarc is far from implementing it. Meanwhile, Bangladesh is meeting nearly half its peak electricity shortage of 1,500 MW from India (600 MW). Anti-India rhetoric notwithstanding, Kathmandu stepped up Indian imports by 30 per cent to nearly 325 MW this year.

The reason behind Saarc’s failures is not unknown. “Saarc has fallen hostage to India-Pakistan relations,” said Zubair Ahmed Malik, a prominent businessman from Islamabad and executive council member of the Saarc Chamber at a recent conference in Dhaka.

According to him, while official India-Pakistan trade is as low as $2.4 billion, the actual trade, mostly routed through Dubai, is anywhere between $7 and $8 billion. Pakistan has scores of steel mills that use Indian gears. Three more such mills are under construction. Obviously, this roundabout system of trade is hurting Pakistani consumers. MNCs are making good use of the negative list by re-routing Indian products at super-normal trade margins. But not many expect a change in the environment of non-cooperation on the western border, anytime soon. The evolving story on the East is quite different. And the biggest reason for this is Dhaka.

Many may prefer to link the current high in India-Bangladesh cooperation with Sheikh Hasina’s rule in Dhaka since 2009. They are not entirely wrong. Except for PV Narasimha Rao, who opened the Tin Bigha corridor to Bangladesh as part of a 1974 agreement during Khaleda Zia’s rule in 1992, Delhi has always been comfortable dealing with Hasina.

But there was never any consistent attempt to change the paradigm of political distrust and give economics a try.

Delhi didn’t care much for defusing the tensions over the land boundary dispute and trade and transit, which are so critical for the East and North-East. And, Dhaka was happy to deny India’s North-East access to Chittagong port that suffers from low usage!

But now the wall has collapsed substantially over the last six years. The cooperation initiative that began with a promise to stop cross-border terrorism, settle border disputes and electricity trade in 2010, has expanded to bandwidth-sharing, port access, and drastic reduction of trade costs through all-round connectivity by rail, road and coastal shipping. Dhaka now welcomes Indian companies to take advantage of this emerging common market.

The success of a Bangladesh is important to India. It has broken a a jinx over Delhi’s attempt to build an environment of regional cooperation in the East. Dhaka’s steadfast moves are putting indirect pressure on the ultra-nationalist ruling class in Nepal to ride the change. For Bhutan, which has been closely associated with India for long, it’s an added opportunity.

But more importantly, Bangladesh’s participation brightens the prospect of creating a regime of cooperation up to Myanmar and Thailand, the gateway to Asean.

Myanmar shares a 1,600-km unfenced border with four North-Eastern States with high people-to-people connect and interdependence. India’s engagement in Myanmar is rising since the retreat of the military in 2011, with a steady focus on infrastructure creation and connectivity.

Delhi is now committed to increasing its economic and geostrategic presence in the region to counter China’s One Belt One Road (OBOR) strategy. A willing Bangladesh can add to the success of this strategy.

For example, a little addition and modification to the existing gas pipeline in Bangladesh may create an international gas-grid running to North Bengal and the adjoining industrial zones of Nepal and Bhutan, adding to the viability of proposed LNG terminals in both Bangladesh and India’s east coast.

Similarly, Dhaka may take the benefit of a possible gas grid from the energy rich Myanmar to India. It’s more feasible than a Turkmenistan-Afghanistan-Pakistan-India pipeline in which Dhaka is keen to participate.

Many fear any political instability in Bangladesh may upset this prospect. There is no denying that Dhaka’s policies have changed sharply with changes of government.

But the good news is, having grown at over six per cent for the last one decade, Bangladesh is now aspiring for more growth. It is doubtful if politics will upset this process. And, going by global examples, it is in the interest of Dhaka to take advantage of the Indian growth story.

Also, unlike in the past, Khaleda Zia is now trying to take credit for cooperation initiatives. Her message to the Narendra Modi government for implementing the land swap agreement is a case in point.

“There is not much policy difference between the two major parties at this juncture. It is good that we have finally got rid of some historical baggage. I don’t see reason in anticipating policy instability,” says Ali Ahmed CEO of Bangladesh Foreign Trade Institute. His optimism is not without basis.