Recent political turmoil in Bangladesh, characterized by widespread protests and the resignation of prime minister Sheikh Hasina, has far-reaching consequences for neighboring countries.
India, Bangladesh’s second largest trading partner in textiles and its main competitor will feel the impact of both positive and negative events.
It is important to know the possible outcomes of the crisis for India’s economy.
Trade relations between India and Bangladesh
Bangladesh ranks as India’s 25th-largest trading partner globally, and its largest in South Asia.
India exported $11.1 billion to Bangladesh in FY24. This was more than Nepal or Sri Lanka.
The main exports are petroleum products, food, automobile parts and vehicle components, as well as cotton, steel and iron.
Exporters in India are concerned about the current crisis, and the Indian government is closely watching the situation.
The political turmoil has already impacted the Indian stock market, with shares of companies like Marico, Pearl Global Industries, and Emami– which have substantial revenue streams from Bangladesh–experiencing declines.
Marico saw, for example, a drop of 4% due to possible disruptions at its Bangladesh operations. These operations contribute between 11 and 12% of the company’s revenue.
The impact of the trade war on long-term economic growth is a matter for debate among experts.
Amitendu Palait, Senior Research Associate at the Institute of South Asian Studies cautioned the inability of the interim government to maintain stability, which may complicate the trade relationship.
Due to Bangladesh’s currency shortage, Indian exporters already face delays in payment. This situation could worsen and lead to a reduction of imports.
The cost of Indian importers and exporters could increase as a result of tighter border controls.
Some analysts argue, like Andrew Wood of S&P Global Ratings that India’s varied export profile reduces the impact the Bangladesh crisis could have on the country.
Wood said that India’s trade relationship with Bangladesh is likely to have a minimal impact on its trade balance.
The Indian textile industry is a mixed bag
India’s textile sector is facing a mix bag of problems due to the crisis in Bangladesh.
Spinners may face difficulties because Bangladesh is one of the largest buyers of Indian fabrics and cotton yarn.
During the current turmoil, global apparel buyers may seek alternatives to Bangladesh.
Bangladesh, a textile giant in the world, is second to China only when it comes to apparel exports. Major brands such as H&M, Zara, and others rely heavily on Bangladeshi factory production.
By 2029, the textile industry in Canada is expected to reach a value of $25.25 Billion.
The current unrest in Bangladesh could damage the country’s image among foreign buyers and open doors to Indian producers.
The positive effect of this shift in the buyer’s sentiment on Indian textile stocks has been felt for some time.
Following Hasina’s resignation, shares of companies like Gokaldas Exports and Century Enka rose up to 18%.
Vikram Kasati, head of advisory at Prabhudas lladher noted that unrest in Bangladesh could harm the brand value and give Indian manufacturers a competitive edge on the global market.
The interdependence of the two countries makes the situation more complicated. The low labor cost and large production capacity of Bangladesh allow Indian textile firms to efficiently meet orders.
This crisis may disrupt production, causing delays in the process and possible shortages.
Indian companies may have to look for alternative bases of manufacturing, increasing costs and affecting their competitiveness.
What impact will it have on India’s Medical Tourism Sector?
The crisis in Bangladesh could affect India’s growing medical tourism industry.
International medical tourism in India is expected to grow by 33% annually between 2023 and 2024, with Bangladesh accounting for 50-60%.
India is a popular destination among Bangladeshi patients due to factors such as similar cultural and linguistic characteristics, quality treatment at affordable prices and modern healthcare facilities.
The ongoing unrest in Bangladesh is causing a disruption to the medical tourism industry.
CareEdge Ratings predicts a dramatic 80% decline in Foreign Tourist Arrivals from Bangladesh for medical treatments in August 2024. A gradual recovery is expected in later years.
The agency expects that medical tourism in Bangladesh will decline by 10-15% in 2024, compared with the year before.
The overall impact of this decline on India’s hospitals is minimal. The sector generates around 3-5% of its total revenues from medical tourism, but treatments can be only delayed for short periods. CareEdge believes that the medical tourism sector will normalize in December 2024, as it stabilizes.
As new information becomes available, this post Bangladesh’s political turmoil: how India’s economy may be affected by Hasina’s resignation could be updated.
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