India’s new trade curbs on bangladesh

India’s new trade curbs on bangladesh, EXPLAINED

When Neighbours Stop Smiling – How Trade Has Become the New Battlefield Between India and Bangladesh

Background

For decades, the border between India and Bangladesh has been more than just a line on a map, it’s been a vital artery of commerce, culture, and cooperation. Trucks loaded with Bangladeshi garments zipped into Indian towns, Indian yarn flowed into Dhaka’s textile mills, and bureaucrats on both sides often boasted of a model bilateral relationship in South Asia. However, beneath the surface of warm handshakes and trade fairs, tensions were quietly simmering waiting for a spark. That spark came in 2024 when Bangladesh’s political ground shifted dramatically. Prime Minister Sheikh Hasina, long seen as New Delhi’s trusted partner, was swept out amid student-led protests. Her departure triggered a chain of events that would reshape not only Dhaka’s domestic politics but also its foreign policy orientation. In her place emerged a caretaker government led by Nobel laureate Muhammad Yunus who wasted no time pivoting away from India and leaning into Beijing’s embrace. What followed was a slow unravelling of economic ties.

Bangladesh blocked Indian yarn, restricted rice, and replaced Indian inputs with Chinese alternatives. India, watching its influence wane, waited until it didn’t. Now, in a bold retaliatory move, New Delhi has struck back by slapping sweeping restrictions on Bangladeshi imports, particularly targeting the garment sector that lies at the heart of Bangladesh’s export economy. However, this isn’t just about tariffs or border logistics. This is a high-stakes message in the language of trade: shift your allegiances, and we’ll shift our policies. What began as a series of trade spats has now escalated into a broader geopolitical standoff. And as India tightens the screws and Bangladesh looks eastward, a once-thriving economic relationship teeters on the edge.

‘Landlocked’ Controversy

The Controversy

During a four-day official visit to China, Bangladesh’s interim Chief Adviser Muhammad Yunus made remarks that have since sparked significant diplomatic tensions between India and Bangladesh. In a speech delivered in Beijing, Yunus referred to India’s northeastern state, the Seven Sisters, as landlocked and lacking direct access to the ocean. He characterized Bangladesh as the only guardian of the ocean for the region and suggested that this geographical positioning presents a huge possibility for China to extend its economic influence through Bangladesh. These statements were perceived by Indian officials as undermining India’s sovereignty and strategic interests, particularly concerning the sensitive Siliguri Corridor, also known as the Chicken’s Neck, which connects the northeastern states to the rest of India. The remarks led to strong condemnations from Indian leaders across the political spectrum. The diplomatic fallout from Yunus’s comments contributed to India’s decision to impose new trade restrictions on Bangladeshi imports.

India’s Response

The Indian Government has officially notified new trade restrictions on select imports from Bangladesh through a Gazette of India publication, which came into immediate effect. According to the notification, Bangladeshi exports including ready-made garments (RMG), plastics, melamine, furniture, juices, carbonated drinks, bakery items, confectionery, and processed foods are now barred from entering India via land ports in Assam, Meghalaya, Tripura, Mizoram, as well as the Fulbari and Changrabandha checkpoints in West Bengal. These goods must now be routed exclusively through the seaports of Kolkata in West Bengal or Nhava Sheva in Maharashtra. Previously, an estimated 93% of Bangladeshi exports to India transited through these land routes, with RMG alone accounting for nearly USD 740 million in annual exports. The rerouting mandate is expected to significantly raise logistics costs for Bangladeshi exporters. The restrictions do not apply to certain essential commodities. Imports of fish, liquefied petroleum gas (LPG), edible oils, and crushed stone remain unaffected. Additionally, Bangladeshi goods transiting through India en route to Nepal and Bhutan are exempt from the directive. According to the Global Trade Research Initiative (GTRI), the restrictions affect approximately USD 770 million worth of Bangladeshi exports—representing around 42% of Bangladesh’s total shipments to India.

Bangladesh’s Retaliation

The Bangladeshi government has started assessing the potential impact of India’s move. India’s restrictions are expected to impact around $770 million worth of Bangladeshi imports, accounting for nearly 42% of total bilateral imports. In response to India’s import restrictions, Bangladesh has annulled a USD 21 million contract with India’s state-owned Garden Reach Shipbuilders and Engineers Ltd (GRSE). The agreement, signed in July 2024, involved the construction of an advanced ocean-going tug for the Bangladesh Navy. This cancellation signifies a shift in defence cooperation between the two nations amid deteriorating bilateral relations. Bangladesh’s garment industry, particularly the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), has urged interim government leader Muhammad Yunus to initiate diplomatic talks with New Delhi. They seek a temporary suspension of the restrictions, warning of severe economic disruption and potential job losses if swift action is not taken. These actions reflect Bangladesh’s multifaceted approach to the trade dispute, combining diplomatic efforts with strategic decisions in defence procurement and industry advocacy.

Impact Assessment

Bangladesh

Bangladesh is likely to feel the immediate and more severe impact of the new trade restrictions imposed by India. The Indian government’s decision to prohibit Bangladeshi exports such as ready-made garments (RMG), plastics, processed foods, and furniture from entering through northeastern land ports and instead route them via seaports in Kolkata and Nhava Sheva will significantly raise the logistical costs. For Bangladeshi exporters, especially small and medium-sized enterprises, this move presents a costly hurdle that undermines competitiveness in one of their few regional markets. While India accounts for only around 2% of Bangladesh’s global garment exports, the proximity and low-cost logistics made the Indian market a valuable outlet for smaller Bangladeshi manufacturers. The sudden need to pivot to longer, more expensive sea routes threatens to erode their profit margins and viability. Moreover, Bangladesh’s earlier ban on Indian yarn and rice had already disrupted the textile supply chain. Indian yarn, once a major input in Bangladesh’s garment production, has now been replaced largely by Chinese alternatives. While this shows Dhaka’s ability to adapt quickly, it also increases reliance on China and disrupts the economic synergy that had developed between the two neighbours over the years.

India

On the Indian side, the response has been applauded by domestic textile and garment producers who have long voiced concerns over unfair competition from Bangladeshi goods. With cheaper Bangladeshi products now restricted, Indian manufacturers, particularly micro, small, and medium enterprises in eastern states, see an opportunity to reclaim market share. However, India also faces potential drawbacks. The abrupt decline in yarn exports to Bangladesh will hit Indian textile producers who previously enjoyed a steady demand from Dhaka’s factories. This could lead to oversupply in the domestic market and suppressed prices for yarn and cotton producers. Strategically, the larger concern for India is geopolitical. Bangladesh’s growing economic alignment with China, reinforced by recent deals and increasing dependence on Chinese raw materials, challenges India’s influence in its neighbourhood. The trade war, therefore, reflects a deeper contest for regional sway.

China

Beyond the bilateral effects, this dispute sends worrying signals across South Asia. It undermines efforts toward regional integration under platforms like SAARC and BIMSTEC and threatens cross-border infrastructure and trade initiatives. Investors may view the region as increasingly unstable and politically unpredictable. China, on the other hand, is poised to benefit. As India and Bangladesh drift apart, Beijing’s influence in Dhaka grows stronger. With Chinese investments, supply deals, and diplomatic support rising, the current standoff plays directly into China’s strategic goals in the region.

New Proxy War?

After the departure of Sheikh Hasina, long seen as pro-India, Bangladesh’s interim government under Muhammad Yunus has shown a clear shift towards deepening ties with China. This includes significant Chinese investments of USD 2.1 billion during Yunus’s March 2025 visit in critical infrastructure projects like the Teesta River development and the modernization of Mongla Port, as well as an increasing reliance on China for military hardware. This pivot has raised alarms in New Delhi. Bangladesh’s geographical location, particularly its access to the Bay of Bengal, is strategically vital. China’s growing presence in Bangladesh, including port developments, is seen by India as part of Beijing’s String of Pearls strategy, aiming to establish a network of naval and commercial facilities around India to secure its maritime routes and expand its influence in the Indian Ocean region. This directly challenges India’s regional dominance and security.

China is offering Bangladesh attractive economic opportunities, including duty-free access for 97% of Bangladeshi goods and flexible loan terms without the political conditions often attached by Western lenders or India. This contrasts with India’s long-standing trade relationship, where issues like trade imbalances and unresolved water-sharing disputes have created friction. Indian manufacturers have also voiced concerns about Bangladeshi exporters gaining a competitive edge by importing duty-free Chinese fabric and then exporting finished garments to India. India views its neighbourhood as its primary sphere of influence and is wary of any external power encroaching on it. China, on the other hand, actively seeks to expand its footprint in South Asia through its Belt and Road Initiative (BRI) and by offering attractive economic packages. The trade dispute, therefore, becomes a battleground where both regional powers try to assert their influence and counter the other’s moves. In essence, while the India-Bangladesh trade dispute has its bilateral economic dynamics, the underlying geopolitical currents, particularly Bangladesh’s increasing alignment with China and India’s efforts to counter that influence, suggest that it is more than just a typical trade disagreement. It’s a manifestation of the broader India-China competition for strategic advantage in South Asia.

What Lies Ahead

The current India-Bangladesh trade standoff marks a turning point in what has traditionally been a cooperative, if occasionally fraught, bilateral relationship. While the immediate economic fallout may not cripple either side, the symbolic and strategic weight of these moves is significant. India’s import curbs are not merely about garments and trade routes, they are a clear message against perceived geopolitical shifts and market imbalances. Bangladesh’s retaliatory steps, including the cancellation of a key defence contract and appeals to re-engage diplomatically, suggest that Dhaka is equally unwilling to be seen as backing down. What comes next will likely depend on whether cooler diplomatic heads prevail or if nationalism and geopolitical rivalry continue to escalate. If both nations dig in, further retaliatory steps could disrupt not just trade flows but regional connectivity and cooperation in South Asia. On the other hand, there’s still room for reconciliation, particularly if dialogue channels are revived and both sides acknowledge the long-term benefits of economic integration. In the near term, businesses on both sides are bracing for uncertainty, while global players, especially China, may quietly benefit from the widening rift. The coming months will test whether India and Bangladesh choose to rebuild trust through dialogue or allow this trade war to calcify into a deeper strategic divide.