As India and Bangladesh navigate complex trade relations, the regional power dynamics in South Asia are shifting. For government exam aspirants, understanding these developments is crucial for subjects like International Relations, Economy, and Current Affairs.
Bangladesh’s Graduation from LDC Status: A Game Changer
In November 2026, Bangladesh will graduate from the United Nations’ Least Developed Country (LDC) category. While this is a positive milestone, it means Bangladesh will lose duty-free export privileges to major markets like the European Union (EU). To offset this loss, Bangladesh is strengthening economic ties with China — a move that is straining its traditionally close trade relationship with India.
Key Issues in India-Bangladesh Trade Relations
1. Trade Restrictions and Reciprocal Barriers
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India’s Restrictions: India recently imposed limits on Bangladeshi ready-made garment (RMG) imports, which form a significant part of Bangladesh’s export economy.
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Transshipment Facility Ended: India terminated a transshipment facility in April 2025 that previously allowed Bangladeshi goods to transit via Indian ports.
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Reasons Behind India’s Move: Concerns about reciprocal trade barriers, port congestion, and growing Chinese influence in Northeast India have motivated India’s tougher stance.
2. Protecting Indian Textile Industry
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Bangladesh benefits from cheaper garment exports due to duty-free Chinese fabrics and export subsidies.
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Indian textile firms face additional costs, including a 5% GST on local fabrics.
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India has secured free trade agreements (FTAs) with countries like the UK, granting duty-free access to Indian garments, and is pursuing similar deals with the EU and US.
3. Bangladesh’s Restrictions on Indian Yarn Imports
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Bangladesh now restricts Indian yarn imports to seaports only, barring land routes.
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This impacts around 20% of India’s exports to Bangladesh, totaling $11.38 billion.
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FY24 alone saw $2.39 billion worth of yarn and handloom exports from India to Bangladesh.
China’s Expanding Role in Bangladesh
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Trade: Since 2020, 97% of Bangladeshi exports enjoy duty-free access to China.
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Infrastructure: Bangladesh hosts the highest number of Chinese-backed projects in South Asia.
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Defense: Bangladesh is the second-largest buyer of Chinese military equipment.
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Political Shift: The fall of pro-India PM Sheikh Hasina and the rise of pro-China leader Muhammad Yunus in 2024 has accelerated Chinese influence.
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Yunus’s 2025 Beijing visit secured $2.1 billion in Chinese investments.
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China’s involvement in regional projects, like those on the Teesta River, challenge India’s influence.
Broader Geopolitical Implications
This trade tension is part of a larger regional realignment:
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India is deepening ties with Western partners like the US, EU, and UK.
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Bangladesh is pivoting economically and strategically toward China.
This increasing geoeconomic competition in South Asia will shape the political and economic landscape in the coming years.
Why This Matters for Government Exam Aspirants
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Topics like India-Bangladesh relations, China’s regional strategy, and South Asia geopolitics frequently appear in exams.
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Understanding these current affairs helps build a strong foundation for subjects like International Relations, Geography, and Economy.
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Awareness of economic diplomacy and trade policies will boost answers in mains and interviews.
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