Bangladesh-India trade relations

India and Bangladesh have good but unevenly balanced trade relations. India is Bangladesh’s second-largest trading partner after China, and Bangladesh has become one of India’s top export markets in recent years. Two-way trade was about $14 billion in the 2023-24 period. But Indian trade has been overwhelmingly lopsided in favor of India. In 2023, India exported about $11–11.3 billion worth of goods to Bangladesh and imported only $1.8–1.9 billion from Bangladesh. This equates to a Bangladeshi trade deficit of $9–10 billion annually. Indeed, in a recent 20-month period, India’s trade surplus with Bangladesh was $9.22 billion, and Bangladesh is, therefore, the country with which India has its third-largest trade surplus.

Bangladesh exports jute products, ready-made garments, and a few agricultural commodities to India, but these are relatively small in comparison with India’s exports to Bangladesh. India also exports many things to Bangladesh – from cotton fabrics and yarn to machinery and chemicals, to consumer goods and food grains. Even energy trade increased as Bangladesh imports electricity and fuel from India, still “tilting trade in favor of India,” according to Policy Exchange Bangladesh CEO M Masrur Reaz. Indian goods enjoy almost duty-free entry under regional agreements, while Bangladeshi exporters are often subjected to non-tariff barriers in India. The result is a perennial imbalance much lamented by Bangladeshi economists and officials. “Imports of commodities have to be diversified… in order to reduce the trade gap,” Dr Reaz recommends, enumerating the need to diversify Bangladesh’s export basket and procure imports from other sources.
Recent events have placed additional pressure on the trade relationship. India suddenly withdrew, in April 2025, a transshipment facility that had allowed Bangladeshi exporters to ship merchandise (especially apparel) to third countries via Indian ports. The pullout of this transit facility affected Bangladesh’s export logistics — costing Bangladeshi shippers an estimated Tk 20 billion, according to Bangladesh’s trade adviser Sheikh Bashiruddin. During political changes in Bangladesh’s leadership, this move was perceived in Dhaka as an aggressive act and was preparatory to Dhaka’s own aggressive moves. Against the backdrop of a broad trade deficit and recent Indian policy realignments, Bangladesh’s National Board of Revenue (NBR) imposed new import curbs that would stem the tide of some Indian goods and protect domestic industries.
Details on the 33 Banned Indian Products: Bangladesh’s NBR banned imports from India of 33 categories of goods in an April 2025 gazette notification (subject to similar restrictions on a shorter list from Nepal and Bhutan). These cover a broad sweep of products already being imported by Bangladesh from India, from raw materials to household goods and inputs for industry. Some of the key banned product categories are:
• Paper and Packaging Materials. Several paper products used for printing and packaging were banned, such as duplex board, newsprint, kraft paper, and cigarette rolling paper. These are core inputs in the printing, publishing, and tobacco sectors, and Bangladesh hopes that its own paper mills may be able to replace them.
• Agricultural and Food Products. Staple foods like fish, potatoes, and powdered milk make up the list. India has been the lead supplier of these (e.g., Indian coastal state fish and West Bengal potatoes), but Bangladesh wishes to develop its own fisheries, potato farmers, and milk processors by eliminating Indian competition.
• Tobacco and Cigarette Inputs. The import of tobacco from India is essentially banned. This includes raw tobacco leaves that are used in cigarette manufacturing (other than that, VAT-registered Bangladeshi bidi manufacturers may continue to import raw tobacco stems as a one-off concession. Further, banning cigarette paper will force indigenous bidi and cigarette factories to produce domestically.
• Textile Inputs and Fabrics. Indian yarn and blended cloth, especially by land routes, are banned. Bangladesh, a leading garment-producing country in the world, has so far utilized low-cost Indian yarn and cloth in its garment industries. The new rules are attempting to protect the local spinning factories and cloth manufacturers from under-pricing by Indian imports.
• Building and Domestic Furnishing Materials. Bangladesh is banning a range of finished items used in homes and buildings. These include sanitaryware and ceramicware (plates, toilets, plates), Formica sheets (laminates), and marble slabs and tiles. Bangladesh is eager to develop new industries in building and ceramic items.
• Mechanical and Electronic Parts. Bangladesh has banned the import of motorcycle/bicycle parts and radio/TV parts from India. These parts are needed for assembling electronics and vehicles. By restricting these, Bangladesh anticipates that domestic parts makers or other sources will fill the gap to feed its burgeoning electronics and light engineering industries.
Remarkably, Bangladesh’s prohibition goes further than what it imposed on Nepal and Bhutan (where only a few commodities like yarn and potatoes are prohibited). The reach signifies Bangladesh’s desire for certain Indian products that are swamping its market. The government rationale behind prohibiting imports is twofold: to protect domestic industries from being inundated by Indian competitors and to prevent rerouting of third-country products (wherein the latter enter Bangladesh via India). It seeks to allow local producers of these items to monopolise the domestic market. As one NBR customs directive put it, the policy’s primary purpose is to “guarantee competitiveness for national industries, above all in the textile, paper, and ceramics industries.”
Though local manufacturers have welcomed the move, Bangladeshi importers and distributors of consumer products are worried. They worry that a shift toward alternative sources of these products (or speeding up local production) could increase costs, which might end up damaging consumers. However, the government is making this calculation assuming that overall industrial benefits overshadow short-term nuisances. Subsequent sections assess this calculation employing economic theory and probable impacts.
Application of Trade Theories: Prohibiting a few imports to strengthen domestic industries isn’t novel to Bangladesh. It is within line with quite a few age-old trade and development theories in support of local manufacturers being spared international competition where warranted. Consider hereafter three of those theories – and why and how these are relevant to the policy.
Infant Industry Protection. The theory of infant industry protection argues that young domestic industries sometimes need protection against established foreign competition until they mature and can compete. It began with the 19th-century economist Friedrich List and was employed by presently developed nations when they were becoming industrialised. For example, in the 1800s, America and Germany charged high tariffs to protect fledgling manufacturers. At the same time, in recent decades, post-WWII East Asian economies provided shelter and support for steel, motor vehicle, and electronics industries during their early development. The presumption is that new industries are costly initially; with time and a protected home market, they can achieve economies of scale, learn new technologies, and eventually compete on the world stage. Bangladesh’s case is in the shape of ceramics, paper, and light engineering goods, which are “infant industries.” By banning Indian imports of these goods, the government is giving local firms a captive market to grow. The theory of hope is that Bangladeshi businesses will seize this moment to invest in better machinery, produce quality products, and improve workers. So, in a couple of years, they can stand alone without protection. Otherwise, policymakers fear that such infant industries may be put out of business by cheaper or better-quality imports before they even have the opportunity to develop. This approach is reminiscent of past trends; as one Bangladeshi commentator dryly observed, protectionism can take on a life if sustained, producing “geriatric infants” that never mature. The test for Bangladesh will be to use infant industry protection in a time-limited and focused manner that does not create perpetual dependence.
Import Substitution Industrialisation (ISI). The bans on imports are also a model of Import Substitution Industrialisation, a policy of development under which nations endeavour to substitute local goods for imports. ISI was trendy in the mid-20th century – India, Brazil, and Mexico followed high tariffs, quotas, and prohibitions on imports to give local manufacturing an impetus from textiles to heavy machinery. The idea is to conserve foreign exchange, create jobs domestically, and build a diversified industrial economy by making at home what you used to import. Bangladesh itself practiced gentle varieties of ISI in the past: e.g., for many years, it had restrictive tariffs and controls over consumer goods that had domestic substitutes (e.g., electronics, cars, etc., often levying 25 per cent or more in duties). The 33-iteme ban could also be viewed as a new push of ISI targeting sectors – inputs into textile, foodstuff, consumer goods, etc. By preventing Indian supply, Bangladesh hopes to make domestic enterprises acquire domestic parts, such as newsprint or milk powder, which India had earlier met. ISI traditionally gave varied results for the world around us. It did encourage earlier industrialisation and reduced import dependence (India, for instance, built a vast industrial base behind protectionist regimes of the 1950s-1980s). However, prolonged ISI used to be inefficient, costly to manufacture, and less innovative due to the lack of competition. Policymakers in Bangladesh appear to know those pitfalls, hinting these bans may be transient and selective. The fact that it is adding largely non-capital goods suggests that Bangladesh is focusing on industries with some capacity or can develop them comparatively quickly (textiles, agrifoods, simple manufactures) rather than very high-tech electronics. In effect, Bangladesh is bringing back import substitution to stem undue reliance on India and bridge a gaping trade deficit. Still, it is trying not to tread the old path by coupling it with reforms and timelines.
Strategic Trade Theory. Another modern variant is strategic trade theory, which argues that in certain sectors – notably those characterized by very large economies of scale or oligopolistic rivalry – government intervention may be able to help domestic firms create a competitive foothold abroad. This theory, developed in the 1980s, often mentions examples like the aerospace or semiconductor industries, in which a nation might subsidise a national champion (like Airbus in the EU) or protect the home market to allow it to grow, with the hope of capturing global market share in the long run. Bangladesh’s restrictions on importation are domestically oriented more than anything else and don’t involve any near-term export aspiration, but a strategic element is involved. Textiles and clothing are already Bangladesh’s comparative advantage globally; by procuring the supply chain (yarn and fabric) locally, Bangladesh may consolidate its strategic position in the garment export sector. In the same way, emerging industries like pharmaceuticals, ceramics, or electronics components behind a shield wall today might, in a strategic sense, enable Bangladesh to export them in the future when the firms have gained competitiveness. The government move can also be read as a bargaining chip on a higher strategic level. By being willing to restrict imports, Bangladesh may be positioning itself to negotiate better terms with India (e.g., pressuring India to remove non-tariff barriers to Bangladeshi exports or to refrain from abrupt policy changes like the suspension of transhipment). Briefly put, Bangladesh is pursuing strategic trade interests through selective retreating from free trade for capacity development in sectors deemed key for attaining economic sovereignty and export diversification.
Using Theory for Bangladesh’s Policy: The above mentioned se theories shed light on Bangladesh’s thinking. The country’s policymakers are aptly arguing that the moment is now to build domestic industries – Bangladesh is moving towards middle-income status and set to graduate from Least Developed Country (LDC) status by 2026, which will increasingly phase out some trade preferences overseas to thrive in the future, Bangladesh wants a stronger industrial base at home. By using tariffs and currently flat import bans (unusual but allowed in some cases by WTO rules for developing nations), Bangladesh employs the old script of infant industry and import substitution to modern realities. It is hoped that protection in the short run will be followed by long-run competitiveness and diversification. Past experience suggests that Bangladesh’s success will be achieved by managing this protective phase – and, if managed responsibly, the nation could emulate the success stories (like protected babies emerging as export superstars). Mismanagement could yield inefficiencies and added costs to producers and consumers.
Economic and Industrial Benefits to Bangladesh: Bangladesh’s import restrictions on 33 Indian products are more than a gesture to limit foreign competition—they are a calculated move to direct economic energy inward and release domestic potential. As economist Friedrich List long ago convincingly argued, “The power of producing wealth is infinitely more important than wealth itself.” This policy does just that: it enables local industries to propel sustainable growth.
Spurring Local Industries. Now that the path has been cleared for Indian imports, local producers—especially manufacturers of paper, ceramics, and packaging—are in a good position to regain market share and raise output. Companies like Monno and Shinepukur Ceramics can now provide an expanding domestic market, perhaps boosting capacity and enhancing technology.
Job Creation. The policy is also expected to create jobs for growth in textiles, agro-processing, and light manufacturing. Textile mills that could not compete with Indian yarn might now operate at higher capacity levels, preserving existing jobs and generating thousands of new ones in spinning, agriculture, and assembly lines.
Enhancing Supply Chains. For sectors like apparel that contribute to Bangladesh’s bulk of exports, avoiding reliance on Indian inputs like fabric and yarn enhances backward linkages. Not only are domestic inputs value-added, but they also provide insulation to the industry from shocks, something crucial for the longer term.
Closing the Trade Gap. Making it at home will result in fewer dollars going abroad. Even partially replacing banned imports can trim billions from the annual trade deficit with India, offering economic and geopolitical leverage.
Spurring Technological Upgrades. With a larger home market to serve, firms are incentivised to upgrade and innovate. As Bangladesh’s pharma success story exemplifies, protected elbow room can be a platform for an internationally competitive industry.
Enabling Rural Producers. Bans on potatoes and fish reroute demand back to Bangladeshi farmers and fishermen, raising rural incomes and encouraging investment in storage, aquaculture, and supply chains—all of which strengthen food security and agricultural self-sufficiency.
Overall, Bangladesh’s strategy deflects the benefits of its robust consumer market inward. If managed well, these constraints could deliver a more diversified, robust industrial base and be a decisive step toward economic self-sufficiency.
Long-Term Impact and Strategic Value: Bangladesh’s decision to ban 33 varieties of Indian imports is greater than a strategic shift—a revolutionary articulation of economic self-determination. Under the visionary leadership of Nobel Laureate Dr Muhammad Yunus, the country has moved from passive liberalisation to strategic protectionism, not as a retreat from globalisation but as a rebalancing of it. As John Maynard Keynes famously said, “The difficulty lies not so much in developing new ideas as in escaping from old ones.” In choosing to shield domestic industries and build indigenous strength, Bangladesh boldly renounces outdated assumptions of unqualified free trade.
If this policy succeeds, it may galvanise the growth of a diversified and robust economy—one where sectors such as ceramics, light engineering, agro-processing, and electronics thrive in addition to the country’s legendary garment industry. The trade deficit against India may begin to shrink, and Bangladesh may finally attain the economic clout and respect it has long aspired to in regional geopolitics.
But the way ahead needs to be careful. Protection, if not combined with encouraging productivity, can also rigidify industries and burden consumers. As Adam Smith warned, “People of the same trade seldom meet together. but the conversation ends in a conspiracy against the public.” Yunus’s challenge will be to ensure that this policy is a stepping stone, not a crutch. Local industries must raise their game, innovate, and compete—survival is not enough behind tariff walls.

Dr Serajul I Bhuiyan is a professor and former chair of the Department of Journalism and Mass Communications at Savannah State University, Savannah, Georgia, USA. sibhuiyan@yahoo.com