Bangladesh crisis poses major foreign policy challenge for India, uncertainty over trade relations

The sudden departure of Bangladeshi Prime Minister Sheikh Hasina following massive student protests threatens to become one of India’s biggest foreign policy headaches, likely to test all its resolution skills.

After fleeing the country, Hasina landed at India’s Hindon airbase on the outskirts of the capital New Delhi, where she is expected to be based temporarily before heading to a European destination, according to local media.

Indian External Affairs Minister S Jaishankar told the country’s upper house of parliament on Tuesday that Hasina had “at very short notice… sought permission to come to India temporarily” after resigning the previous day.

The minister said the government was in touch with authorities to ensure the safety of the 19,000-strong Indian community in Bangladesh, including 9,000 students.

“Most of the students have already returned to India in July on the advice of the High Commission,” Jaishankar said, adding that the border forces have also been instructed to be “exceptionally vigilant in view of this complex situation”.

Throughout her 15-year rule, Hasina maintained close ties with Delhi, which made Bangladesh one of India’s top export destinations for a variety of goods and services – from cotton yarn for garments to information technology.

The flourishing trade with Dhaka also promised to become an anchor to boost the moribund trade in the Bay of Bengal region, located at the crossroads of strategic trade routes between the Indian and Pacific Oceans.

“We will have to wait and see how things play out. The Indian government has invested a lot in Hasina’s government and has given her pretty much everything she wanted,” said Biswajit Dhar, a professor at the Council for Social Development, a Delhi-based research institute.

Over the past decade, Bangladesh’s economic boom has nearly propelled it to the status of an “Asian Tiger”, although growth has slowed in the past 18 months and Dhaka has begun to attract significant foreign investment.

Bangladesh is India’s largest trading partner in South Asia, and India is Bangladesh’s second largest trading partner in Asia after China.

According to a report by India’s leading business daily, The Economic Times, Indian exports to Bangladesh have fallen to $11 billion in 2023-24 from $12.21 billion in 2022-23, while imports have declined to $1.84 billion from $2 billion during the same period.

Bangladesh’s major exports to India are garments, accounting for more than half of shipments.

Delhi has gone out of its way to woo Bangladesh, even agreeing to concede a larger share of the Teesta River’s water flow in 2011 – a deal that was scrapped at the last minute due to objections from the Indian state of West Bengal.

Despite this setback, Hasina has also reciprocated Delhi’s gestures and, just last month, chose India over China for a billion-dollar Teesta river development project, despite little progress on the water-sharing issue.

“There is now no certainty about when the next stable government will take power in Bangladesh and whether it will continue its policies consistently,” Dhar said.

On Wednesday, Bangladesh’s presidency announced that Nobel Prize-winning microfinance pioneer Muhammad Yunus had been appointed to lead an interim government after a meeting with military leaders and leaders of the Students Against Discrimination group.

Hasina, 76, had been in power since 2009 but was accused of rigging elections in January. The caretaker government is expected to hold fresh elections soon, with Yunus seen as a figurehead who has temporarily assumed leadership of the government.

The repercussions of the political unrest are likely to be felt across the South Asia region as Bangladesh’s trade ties with India emerge as an anchor for building a regional subgroup centred on the Bay of Bengal region’s trade.

Last year, Bangladesh allowed India to use the ports of Chittagong and Mongla for transit and transshipment of goods, potentially reducing logistics time and costs in India’s landlocked and resource-rich northeast, which was set to be extended to Southeast Asia through the development of highways, coastal shipping and even air services.

India’s trade ties with Bangladesh also serve as a cornerstone of a planned free trade area linking Myanmar, Thailand, Bangladesh, Bhutan, India, Nepal and Sri Lanka, which are members of the Dhaka-headquartered Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation (BIMSTEC).

Leaders of the seven countries are due to meet in Thailand next month to strengthen cooperation.

“In future, the contribution of this group will depend on the political situation in Bangladesh. Everything around it could be seriously compromised,” Dhar said.

Delhi’s ties to Hasina’s government were not just important for commercial reasons. Analysts say it had successfully kept at bay radical militant groups that wanted to target India, underscoring how much is up in the air with Hasina’s departure.

Analysts say the potential for expanding trade ties in the region is now being replaced by Indian concern that militants and extremist groups could take advantage of the political flux to establish bases that could endanger the region’s stability.

“India’s sister states in north-east are enjoying relative peace thanks to Hasina’s cooperation with India. She has been tough on radical Islamism and Pakistani ISI networks in Bangladesh,” said Chris Blackburn, a British political and security analyst.

Bangladesh and conflict-torn Myanmar threaten to compound Delhi’s problems on India’s eastern flank, he added.

India shares a long and porous border with Bangladesh, which is a transit point for illicit gold and weapons smuggling. If the unrest continues, a wave of illegal immigrants is also likely – a problem that has eased in recent years thanks to greater economic prosperity.

But Bangladesh’s economy has been facing persistently high inflation of close to 10 percent in recent months, and workers’ wages are among the lowest in the world.

The lack of political stability following Hasina’s departure could worsen Bangladesh’s economic woes and disrupt the South Asian region, analysts say.

“The sudden departure of a partner like Sheikh Hasina is a shock to the system. Bangladesh is not politically stable and an economic recovery is unlikely to happen quickly,” said Harsh Pant, professor of international relations at King’s College London, adding that the challenges for India would be considerable.

The political vacuum in Bangladesh could give way to the Bangladesh Nationalist Party and its ally Jamaat-e-Islami, which are hostile to India, analysts say.

The military was supposed to maintain law and order during the interim period of a caretaker government, but “it will be interesting to see if other political forces, including the far right, make a comeback,” said Priyajit Debsarkar, an independent geopolitical analyst who has written extensively on Bangladesh.

“It will be a puzzle of multiple actors who can potentially claim to form the government,” he said.

Earlier this week, India’s ruling Bharatiya Janata Party (BJP)-led coalition held an all-party meeting, including opposition leader Rahul Gandhi, to discuss the situation in Bangladesh.

Although Delhi’s task in rebuilding ties with Bangladesh appears easy, analysts are cautiously optimistic that India’s geographical proximity means that even a new regime will be willing to maintain relations for economic gain.

Sreeradha Datta, professor of international affairs at Jindal Global University in Haryana, said observers needed to recognise that the situation in Bangladesh “is an entirely youth-led movement and largely apolitical”.

“No political party has been able to do this,” she said, adding that isolated acts of violence against Hindu minorities in Bangladesh should not be relied upon as a “typical thing” that happened during a major event.

“I hope the caretaker government will handle this brilliantly. All political parties (in Bangladesh) know that working with India is very helpful. If you see positive things happening, why would you want to deprive your people of that?” she said.

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