Tensions Escalate Between India and Bangladesh as Trade Restrictions and Political Strains Deepen

Hadisur Rahman, JadeTimes Staff

H. Rahman is a Jadetimes news reporter covering the Asia

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Image Source: Anbarasan Ethirajan

Businesses in South Asia are bracing for economic disruption as relations between India and Bangladesh worsen, fueled by tit-for-tat trade restrictions and escalating political tensions following a major leadership change in Dhaka.

Last month, Bangladesh imposed restrictions on cotton yarn imports via land routes from India, aiming to protect its domestic textile industry. In response, India halted a key transhipment facility used by Bangladeshi exporters to access global markets through Indian ports and airports, citing "congestion" as the reason.

These moves follow the ousting of former Bangladeshi Prime Minister Sheikh Hasina in August after widespread protests. Now in exile in India, Hasina faces charges in Bangladesh, including corruption, money laundering, and crimes against humanity allegations she denies. Dhaka has formally requested her extradition, but New Delhi has yet to respond.

The interim government in Bangladesh is currently led by Nobel Peace Prize laureate Muhammad Yunus. Tensions escalated further after Yunus, during a visit to China, described Bangladesh as the “only guardian of the ocean” for India’s landlocked north-east and suggested the region could become an “extension of the Chinese economy.” The remarks drew criticism from Indian politicians, particularly in the north-eastern states, where strategic vulnerabilities are a longstanding concern.

India's north-east is connected to the mainland by the narrow Siliguri Corridor commonly referred to as the “chicken’s neck” which is geographically vulnerable and flanked by Bangladesh, Nepal, and Bhutan. Any instability in this region triggers security alarms in Delhi, especially amid rising Chinese influence in South Asia.

India also expressed unease about Beijing's proposed involvement in Bangladesh's $1 billion Teesta River project, located near the sensitive corridor.

On the trade front, the suspension of the India-Bangladesh transhipment route is particularly painful for Bangladesh’s fast-fashion industry. The land-air corridor allowed goods to reach European and American markets within a week. Now, exporters face delays of up to eight weeks via sea routes. In 2024 alone, India exported $1.6 billion worth of cotton yarn to Bangladesh—about a third through land routes.

“This is a blow to our ready-made garment sector,” said Anis Ahmed, head of the supply chain company MGH Group. “The India route was a game changer for fast-fashion exports.”

Bangladesh is the world’s second-largest apparel exporter after China, with $38 billion in garment exports last year over $1 billion of which moved via India’s land-air route. However, with limited direct air freight capacity and under-equipped airports, alternatives remain costly and inefficient.

The friction is also affecting broader people-to-people relations. India has reportedly tightened visa rules for Bangladeshi nationals, with daily approvals dropping by more than 80% in recent months. Around two million Bangladeshis travel to India annually for tourism, education, medical treatment, and business.

Meanwhile, New Delhi has raised alarms about alleged persecution of Hindus in Bangladesh, including a recent incident involving the killing of a Hindu community leader. Dhaka, a Muslim-majority country, denies systemic persecution and says such incidents are politically motivated or criminal in nature. Hindus comprise less than 10% of Bangladesh’s 170 million people.

Economic groups in India have responded by calling for further trade barriers. The Indian Clothing Manufacturers Association recently urged a complete ban on Bangladeshi garment imports via land routes.

In Dhaka, economists warn that these tit-for-tat measures could backfire. Debapriya Bhattacharya, a senior economist at the Centre for Policy Dialogue, said: “There’s now a strong sentiment in Bangladesh to reassess the transit and transhipment facilities given to India by the previous [Hasina] administration.”

India currently enjoys transit access through Bangladeshi roads, ports, and waterways to supply its north-eastern states a strategic and economic advantage that could now be at risk.

Adding to regional complexity is the recent diplomatic thaw between Bangladesh and Pakistan. Pakistan’s foreign secretary visited Dhaka last month, the first high-level meeting in 15 years. While a visit by Pakistan’s deputy prime minister was postponed amid tensions with India over a militant attack in Kashmir, the rekindled diplomacy has not gone unnoticed in Delhi.

“There is no concern over Dhaka reaching out to Pakistan per se,” said Shyam Saran, former Indian foreign secretary. “But if there’s even a perception of coordination to counter Indian interests, that will raise serious alarm.”

Analysts on both sides are urging restraint, noting that inflamed rhetoric and hasty policy decisions could derail decades of economic and diplomatic cooperation. Public opinion in both countries is hardening, with growing anti-India sentiment in Bangladesh and skepticism in India over the interim leadership in Dhaka.

Unless cooler heads prevail, the fallout could damage not just bilateral trade worth billions but also the strategic balance in a region already marked by competition between regional powers.