Bangladesh faced significant turmoil in July as inflation surged to a 12-year high of 11.66 percent, sparked by widespread student protests over a job quota system. The unrest led to the resignation of Prime Minister Sheikh Hasina. Nobel laureate Muhammad Yunus now heads the interim government amid continued economic challenges and social unrest.
July was marked by country-wide protests by the Anti-Discrimination Student Movement, demanding quota system reforms in government jobs.
A crackdown by the government on dissenters further provoked the protests as agitators soon began to demand the resignation of the Sheikh Hasina-led Awami League government.
Hasina, 76, resigned and fled to India last week and an interim government was formed headed by Chief Adviser, 84-year-old Nobel laureate Muhammad Yunus.
Over 230 people were killed in Bangladesh in the incidents of violence that erupted across the country following the fall of the Hasina government on August 5, taking the death toll to 560 since the anti-quota protests first started in mid-July.
In a recent forecast, the Mastercard Economic Institute (MEI) said the country is expected to experience a decline in GDP growth and inflation in the fiscal year 2025, The Dhaka Tribune reported.
According to MEI, the country’s GDP growth will drop to 5.7 percent, while inflation, after rising to 9.8 percent in FY24, is projected to ease to 8 percent in FY25.
Bangladesh, located in South Asia, has a rich and complex history that spans centuries. Here is a brief overview of key historical events in Bangladesh:
This overview provides a snapshot of Bangladesh’s historical journey, but the country’s history is vast and intricate, shaped by a multitude of factors over the centuries.
The political landscape in Bangladesh has been characterized by a few key features:
The finance ministry is closely monitoring the unfolding crisis in Bangladesh, concerned about its potential impact on trade and economic stability. Sheikh Hasina’s tenure saw a significant boost in trade relations between India and Bangladesh, with a notable trade surplus in India’s favor. Her exit could disrupt these gains, affecting the movement of goods and people and stalling a potential free trade agreement (FTA) between the two nations.
Their bilateral trade reached $13 billion in the financial year 2023-24, with Bangladesh being the top destination for India’s cotton exports and a significant importer of petroleum products and cereals.
A disruption in these ties could restrict India’s access to the Northeast, currently connected through narrow land corridors.
In Bangladesh, at least 300 people reportedly died in the violence. Curfews were imposed and the internet was shut down for several days, impacting the day-to-day operations in the “fragile” economy.
The trade relationship between the two countries spans various sectors including trade, medical tourism, and corporate expansion.
Bangladesh plays a significant role in the global garment industry and imports cotton from India. In the fiscal year 2023-24, India’s exports to Bangladesh fell to $11 billion from $12.21 billion in 2022-23. Similarly, imports from Bangladesh decreased to $1.84 billion in the last fiscal year, down from $2 billion in the previous year.
India’s major exports include vegetables, coffee, tea, spices, sugar, confectionery, refined petroleum oil, chemicals, cotton, iron and steel, and vehicles, while its main imports consist of fish, plastic, leather, and apparel.
Amid the political turmoil, India’s diversified export portfolio means that any disruptions in trade with Bangladesh are unlikely to significantly affect its overall trade position for the fiscal year, according to S&P Global Ratings.
Notably, infrastructure and connectivity projects have been crucial in bolstering Indo-Bangladesh relations. Since 2016, India has provided $8 billion in credit for the development of road, rail, shipping, and port infrastructure in Bangladesh. Key projects include the Akhaura-Agartala rail link and the Khulna-Mongla Port rail line, both inaugurated in November 2023, which aim to boost trade and strengthen people-to-people ties.
Disruptions in these connections, due to the ongoing political chaos, could hinder India’s access to its Northeast region, which relies on narrow land corridors, and jeopardize existing bus routes and agreements for Chittagong and Mongla ports.
Further, several Indian companies also have strong business ties to Bangladesh, including Tata Group, VIP Industries, Marico, Adani Power, and Emami, among others.
The geopolitical implications of this crisis go beyond immediate bilateral concerns. Bangladesh’s strategic position and its ties with China add significant complexity to the situation. China has been a key defense supplier to Bangladesh, providing submarines, warships, and support for a new naval base designed to accommodate substantial naval assets. Additionally, China has extended a considerable amount of loans to Bangladesh. The potential for increased Chinese leverage and Bangladesh’s possible use of this relationship to counterbalance India necessitates a careful approach.
India’s approach to the crisis must be both strategic and adaptable. It must engage with the caretaker government and other emerging leaders in Dhaka to preserve its strategic interests. If the caretaker government or an eventually elected one proves less friendly, India must convey its red lines and ensure that its interests are safeguarded.
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