By TON Research Section

Bangladesh is one of the strongest economies of South Asia at the moment. However, informal and illegal trade across border is posing a serious threat to the success of rapidly growing economy of Bangladesh. Despite, the bilateral trade agreements, the smuggling business between both the countries is on rise and is worth as much as their official trade. Informal and illegal trade on land borders of Bangladesh and India has been substantial ever since Bangladesh got separated from Pakistan in 1971. Until partition of the subcontinent there was no border line dividing Bengal and India but after the partition, border trade was limited and strictly restricted during the era of 1947 to 1971. After Bangladesh’s independence, border trade between both the countries became partially legal and was characterized as informal trade. A large number of local people living in the areas near border were involved in smuggling and transporting small quantities of goods and products.

Bangladesh and India shares 4,096-kilometre-long boundary and India is one of the largest trading partners of Bangladesh in South Asia. Bangladesh has substantially liberalized its trade since independence. Both countries greatly impact the economic demography of South Asian region. Bangladesh is the third largest and India is the largest economy in SAARC countries. Bilateral trade between both the countries started on March 1972. Economic reforms were introduced by Bangladesh in 1982 and India in 1991 that bought changes in the economic interaction between both the countries. However, Bangladesh’s trade with India has been dominated by the imports from India. According to a survey, Bangladesh's smuggled imports from India between 2016 and 2017 were approximately of $3236 million, or about 40 per cent of recorded imports from India. In 2018 India's officially recorded exports to Bangladesh were about $10.2 billion whereas its imports from Bangladesh were $1.2 billion only. India has become the largest source of imports for Bangladesh.

Bangladesh’s trade deficit with India dates back to the year of its birth. One of the main reasons behind continuous trade deficit of Bangladesh with India is that both have similarity in trade export and India’s position is stronger in global trade thus, it dominates Bangladesh. The cause of concern for Bangladesh government is more than that of Indian government because mostly the goods are smuggled from India to Bangladesh by dodging custom duties. Another form of informal trade is called as ‘technical’ smuggling in which other illegal ways are used such as bribery of customs and officials for trade. Indo-Bangladesh trade relations has created trade deficit for Bangladesh which shows a rising trend. It went up from US$7.35 billion in fiscal year 2019.

Since early 1980’s, GDP growth of Bangladesh has increased but the growth rate of Bangladesh’s agriculture sector has been slower significantly than the overall GDP growth. Bangladesh’s agriculture export has gone through significant changes. The smuggled goods produced by Bangladesh are substituted by locally produced goods in India. Export of raw jute and rice faced stiff competition from substitutes, which in result declined the value of raw jute export from Bangladesh. Where India is a vast market for goods, it also demands for many Bangladeshi products. Smuggling of jute and rice from Bangladesh to India is in astonishing frequency. Indian buy these products on cheaper cost in black market from Bangladeshi people and sell them with profit. Bangladesh shares its border with the North Eastern region of India where development is considered to be on the lowest levels as compared to the rest of the country. Albeit, Bangladesh’s location for the people of these areas is ideal because they can easily export their goods to Bangladesh and import Bangladesh’s good at cheaper cost to sell them in the country at a very good amount.

Smuggling goods out of Bangladesh provide economic incentives to Indian’s. These smuggled goods escape from paying Value Added Tax (VAT) which amounts to the transfer of revenue from Bangladesh to India. The ratio of price through legal trade is very high than through smuggling which is in the economic interests of India therefore, there is no restriction and check from Indian side on the border. There is no risk of detection on border for smugglers and they carry illegal trade on regular basis. Smuggling is considered to be the main activity alongside the border areas of Indo-Bangladesh. Infiltration and smuggling has been a threat to Bangladesh’s security and economy however, no proper check and balance system has been implemented up till now. In some areas fencing on the long border has been done but the border is so porous that it is so easy for infiltration and smugglers to carry out their work without problems.

Undoubtedly, smuggling and infiltration right on the international Indo-Bangladesh border line, where people live in proximity, make all the security arrangements absolutely meaningless. These hollow security arrangements are easily exploited by smugglers on both sides. This complex border of Indo-Bangladesh is the backdoor for smugglers and illegal trade business is carried out without any interference from authorities which leads to the shortage of rice, jute and cotton especially and the export earnings of the country continue to fall by this business.

Indo-Bangladesh land border unofficial trade inside official channels is of major concern especially for Bangladesh’s government. Informal and illegal trade distorts market, local industry along with the price mechanism which adversely affects Bangladesh economic development. However, to get quicker and better trade balance improvement, policy actions need to be taken and implemented by both sides. To reduce the trade deficit, Bangladesh needs to expand its export products and require excessive documentation and check and balance by custom offices.