its powerful allies

its powerful allies: Part one: India

It is obvious that being next to a huge country such as India has important consequences for Bangladesh.

In 2022, these relations will be challenged as never before.

Relations with India are at many levels: Economic, military, cultural, religious, and financial.

The policy of the government is certainly to maintain good relations with India, but not follow India’s demands. 

India, on the other hand, recognizes that a friendly relationship with Bangladesh is very important.

However, India wants to closely control every aspect of Bangladesh’s government that touches on India.

Which in India’s eyes, is virtually everything. 

India runs a very large trade and current account surplus with Bangladesh.

In 2020/21 Bangladesh had a current account deficit with India of $8.8 billion.

This was largely made up by the trade deficit of $8.3bn (exports from Bangladesh were $1.3bn and imports to Bangladesh were $9.5bn).

The official estimates are wrong in four respects:

(1) There is a large amount of under-invoicing of imports.

That is, the stated value of the import is less than the true value; the importer uses the hundi system to pay.

The foreign exporter the difference. For India, more than 50% of invoices were found to be undervalued.

We estimate this under-invoicing as $3bn

(2) The balance of payments does not reflect the remittances of Indian workers in Bangladesh.

That flow through the hundi system. We estimate these at $1.4bn.

This is lower than many reported estimates but is based on information from people in the industry 

(3) Bangladeshi visitors to India for all purposes (education, medical treatment, tourism) account.

For $1.5bn for the 2.6 million Bangladeshi visitors to India in 2020/21.

(4) Informal trade which is a net $3bn 

A more accurate estimate for the current account deficit for India is about $17.7bn.

The inflow of capital to Bangladesh from India in 2020/21 was $1.4bn (Most of these numbers are from the Bangladesh Banks.

Report on the balance of payments with India for 2020/21).

The Indian economy benefits tremendously from this current account deficit.

Equally, this reduces the Bangladesh economy by about $14.1bn. The return capital inflow is only $1.4bn.

India has put many barriers to reduce Bangladesh exports.

It is ruthless exploitation of the Bangladesh economy.

One would hope that the Bangladesh government in 2022 would insist on corrective arrangements.

Lowering the barriers to exports or putting countervailing duties in place to lower Indian imports.

Second, to prevent Indian companies from under-invoicing exports to Bangladesh.

The impact of this is to reduce border taxes collected by Bangladesh.

These uncollected revenues amount to about $1bn. 

The Indian workers’ illegal transfers through the hundi system should be stopped.

These amounts are taxed as income, and then made to pass through the formal banking system.

The BGMEA has a key role to play here.

Since BGMEA is asking a lot of help from the government.

It is fair to insist that the payment of foreign workers gets under control.

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