THE last decade has seen a perceptible shift in global business and economic activity, away from North America and Western Europe towards the Asia-Pacific region. The remarkable growth of the economies of East Asia, known as the 'Tiger' economies in the 1980s and early 1990s -- together with the sustained growth and development of China and India -- have led to the 21st century now being described as the Asian century. Most international economic analysts, including the American National intelligence Council, have forecast that, if China and India maintain their present relatively high economic growth rates, China and India will emerge as the second and third largest economies in the world by 2035.
To give examples of the fast-paced growth in India just two sectors -- automobiles and mobile phones -- may be considered. The production of cars in India has grown from 0.64 million (6.4 lakh) units in 2003 to 0.8 million (8.0 lakh) units in 1004 and is expected to cross 1.0 million (10 lakh) units in 2005. The number of two-wheelers, three-wheelers and four-wheelers produced in India crossed 7.3 mn (73 lakhs) in 2003-04 and is expected to crossed 10 mn (1.0 crore) in the next two years. If the Indian car market grows at this average of 10% a year for the next 15 years, India will by then become one of the leading car manufacturers in the world!
The boom in mobile phones is another example. Thanks to reduction in call rates, the number of mobile phone users in India has grown exponentially from just 3.0 million in 1000 to 13 million in 2002 to 45 million mobile phone users per annum for the foreseeable future, making India the fastest growing market in this sector and the world's third largest mobile-phone market by 2009.
India's economy today is driven by its increasingly affluent middle class. The size of this group, with international purchasing power capabilities is estimated at over 300 million, roughly one-third of the Indian population. This group is growing at roughly 5.0% to 10% per annum.
India's economic growth and the emergence of a large consumer society holds out significant positive potential for the economic growth and development of Bangladesh -- India's nearest neighbour with whom it (India) shares a land border of over 4000 Kms. For Bangladesh and all investors here, India offers access to this vast consumer society. Such access would provide Bangladesh far greater opportunities for trade, commerce and investment than if Bangladesh entrepreneurs were to rely exclusively either on domestic markets in Bangladesh or on markets much further away.
Most astute and experienced entrepreneurs in Bangladesh would recognise and accept this logic. The question then arises is how do Bangladesh and India together translate this vision into a practical reality. In order to explore this, the theme -- Developing the Infrastructure for augmenting Bilateral Trade, Economic and Investment Relations between Bangladesh and India -- is quite relevant.
Developing this infrastructure covers a wide range of activities. The most basic is the social infrastructure for enhancing Indo-Bangladesh bilateral economic interaction. The people of Bangladesh and India enjoy age-old civilizational, linguistic and historical links. Both the countries know each other well. They are comfortable with each other's company and quickly make friends when they meet, whether in India, in Bangladesh or abroad in third countries. To facilitate and further strengthen the social infrastructure linkages requires liberal, transparent and easily accessible visa facilities between India and Bangladesh. In 2001, the governments of Bangladesh and India signed a Revised Travel Arrangement (RTA) with the objective of encouraging business and other people-to-people links between the two countries.
In full implementation of this liberalised visa regime, the High Commission of India now issues over 0.5 million (5.0 lakh) visas a year permitting Bangladeshi citizens to visit India for business, tourism, education, medical, pilgrimage and other purposes. A substantial number of long-term multiple entry visas are given to entrepreneurs and members of the business community to facilitate their links with India. India is, however, concerned that similarly liberal and transparent facilities are not in place for issue of visas for Indian citizens to visit Bangladesh.
Individual members of Chambers of Commerce and Industry, both in India and Bangladesh, have conveyed to the High Commission of India the difficulties their business associates from India face in visiting Bangladesh.
India has been disturbed by instances in recent weeks where Indian executives and professionals in Bangladesh with valid work permits and visas have faced arbitrary cancellation of their permits with no reasons being assigned. India has particularly disturbed over the recent daylight murder in Dhaka of a prominent Indian trader. All such instances negatively affect the confidence of the business communities on both sides.
When any such problems occur, mechanisms should exist to seek solutions through mutual consultations. India hopes that when the bilateral RTA between the two countries comes up for review next year, both sides will be able, through friendly discussions, to further update this Agreement, so that it can strengthen the social infrastructure for the people-to-people relationship, particularly in the business sector.
Then the politico-legal infrastructure for enhancing bilateral trade and investment links between Bangladesh and India can be discussed. The first Trade Agreement between Bangladesh and India was signed in 1980 under the leadership of former President Ziaur Rahman. It was a farsighted document, with specific provisions for transit and transhipment. Unfortunately these remain unimplemented even today. This Trade Agreement is being extended for six months at a time, with the latest extension being made from September 30, 2005. However, discussions have been completed on updating this Trade Agreement. The revised Trade Agreement is now almost ready for signing and India looks forward to this being done during the proposed visit of the Indian Commerce Minister to Bangladesh.
Similarly, the Bilateral investment Promotion & Protection Agreement (BIPPA) is ready for signing between the two countries, with the text having been finalised. This Agreement will enable investors from both countries to be accorded fair and equitable treatment and to receive protection from 'nationalisation' or 'expropriation'. According to the proposed BIPPA, both parties will agree to accord "national treatment" and "Most Favoured Nation Treatment" to investments by either country. India looks forward to the signing of this Agreement too, in the near future.
India and Bangladesh have already signed an Avoidance of Double Taxation and Prevention of Fiscal Evasion Agreement in August 1991. The DTAA ensures that residents of either country are exempt from Double Taxation on income tax or surcharges. Similarly, the agreement contains provisions to ensure that corporate profits or profits from enterprises, air transport, interest, dividends, royalties, etc., are not taxed in both countries. Both countries are attempting to upgrade the DTAA, by expanding its scope to include other areas like road transport.
In addition to the above, India has offered more than two years ago, a bilateral agreement between the Bureau of Indian Standards (BIS) and Bangladesh Standards and Testing Institution (BSTI) allowing for mutual recognition of standards. This would enable speedy certification of Bangladeshi products for export to the Indian market, thereby greatly facilitating entry of additional Bangladeshi goods to India. However, India is yet to receive a response from BSTI and the Bangladesh Ministry of Commerce on this.
Most recently, in August 2005, during the Joint Working Groups (JWG) on Trade, India has proposed a bilateral Memorandum of Understanding (MOU) with Bangladesh on Consumer Protection and Legal Metrology. This will enable better protection of the rights of the consumers of both countries.
India has for several years now been offering tariff reductions to Bangladesh, on a bilateral basis, as well as under SAFTA and the Bangkok Agreement. India has already granted tariff concessions ranging between 50% and 75% on about 2600 tariff lines and duty-free concessions on 79 items from Bangladesh. This concession covers nearly 70% of Bangladesh's exports to India.
To further strengthen market access for Bangladesh exports to India, the latter has offered, over two years ago, to conclude a bilateral FTA with Bangladesh. Bilateral Working Groups on Trade and Customs were set up in August 2003, which were expected to meet regularly every three months in an effort to dispel all differences on the so-called non-tariff and para-tariff barriers and to expedite discussions on the bilateral FTA. The first two meetings were held more or less on time and actually achieved positive results by way of regularising cement exports from Bangladesh and resumption of lead acid battery exports to India. However, for almost 18 months, there was a breakdown in the dialogue process, with its own negative consequences for perception among the business community about the process. It is heartening to report that the Working Group on Trade met again last month and the dialogue has resumed. Hopefully, the Working Group on Customs will also meet soon enough.
The bilateral FTA India has proposed is asymmetric, in that it would enable Bangladeshi firms to have access to the Indian market immediately, while Indian goods would get access only after eight to ten years. No matter what pattern of market access is envisaged, a Rules of Origin (ROO) Agreement would need to be finalised between the two countries. The Bangladesh Government has now informed India that it is appointing a consultant to study the FTA issue further. India does hope that Bangladesh will decide quickly to engage India earnestly on the issue, as Bangladesh risks losing out by not responding. FTAs are becoming the norm for trade liberalisation globally, whether it is in South Asia, Asia-Pacific or other parts of the world. The FTA would also encourage more Indian investment and enable trade to be balanced.
The FTA India has offered to Bangladesh is patterned on the one already concluded by India with the Government of Sri Lanka. It is relevant to note that after the FTA with Sri Lanka, not only have Sri Lanka's exports to India quadrupled in four years, but the trade surplus India enjoyed at 15:1 in its exports to in its exports to Sri Lanka has now come down to 5:1. India has also emerged as Sri Lanka's third largest foreign investor and Indian investors now account for 30 per cent of Sri Lanka's exports to India! The preferential tariffs by the FTA are the key factor attracting the Indian investment. Based on the highly successful experience of their bilateral FTA, India and Sri Lanka are now in the process of finalising a Comprehensive Economic Partnership, Agreement (CEPA) which will further expand the investment, and improve trade facilitation. Certainly, Bangladesh enterprises and foreign investors in Bangladesh would similarly benefit, once the Bangladesh-India FTA is finalised.
India also has FTAs with Nepal and Bhutan. Beyond the immediate neighbourhood, India has focused on concretising substantive linkages with various regional organisations like BIMSTEC and ASEAN. The BIMSTEC FTA negotiations have made considerable progress and the implementation of the FTA by July 01, 2006 will have far-reaching implications. Both Bangladesh and India are active partners in the BIMSTEC process.
India signed a Framework Agreement with ASEAN in October 2003 to establish a FTA within 10 years that includes goods, services and investment. Several rounds of negotiations have already been held and most items, under the Early Harvest Programme have been agreed on. India has-also finalised in Early Harvest Programme as part of its FTA with Thailand (in 2003). India has signed a Comprehensive Economic Cooperation Agreement with Singapore in June, 2005, which is proving to be a strong catalyst in facilitating two-way investment and trade & services between Singapore and India. India has also signed a Partial Trade Agreement with Afghanistan in 2003, which is enabling Afghan products like dry fruits, nuts, fresh fruits and precious stones to have easy access to the Indian market.
India has focused equally on regional organisations which may be geographically distant but are important for its foreign trade. Negotiations with the Gulf Cooperation Council are already underway to finalise an FTA.
Framework agreements for cooperation have been signed by India, with, South African Customs Union and COMESA, in Africa. A Comprehensive Economic Cooperation Agreement is being negotiated with Mauritius. India has-already signed an MOU in March, 2004 with eight West African countries (known as Team-9) to facilitate closer economic, commercial and technical cooperation.
A Preferential Trading Agreement was signed with MERCOSUR, in January, 2004, which will lead to an FTA later. Framework agreements for economic cooperation have been signed with the Andean community, and with CARICOM in Latin America. India is presently engaged in bilateral negotiations for trading agreements with South Korea, Mauritius, Australia and Egypt. India is also considering a bilateral investment agreement, encompassing trade and services with EU and the US.
Sustained efforts are, thus, being made by India to develop the politico-legal infrastructure for bilateral trade and investment links with countries around the world, In each case, the results have been positive and rewarding, leading to greater trade and investment links with these countries. India hopes that with Bangladesh, too, will soon see a greater strengthening in the politico-legal infrastructure for bilateral trade with corresponding positive results for Bangladesh exports to India and vice versa.
Among the most immediate and urgent requirements is for both Bangladesh and India to seriously improve the physical infrastructure for strengthening trade and economic linkages between the two countries. The physical connectivity between Bangladesh and India covers the riverine, railway and read transportation networks. Today the overwhelming burden of Indo-bilateral trade is on the road network with 70 per cent of Bangladesh-India trade taking place through one Land Customs Station at Benapole/Petrapole. The tremendous pressure this imposes on the service facilities available at Benapole/Petrapole leads to understandable dissatisfaction among exporters and importers on both sides. As a result, many problems basically arising out of infrastructural inadequacies are unnecessarily described as so-called para-tariff or non-tariff barriers. Of course these inadequacies need to be overcome and the setting up of bilateral Joint Working Groups on Customs and Trade are meant just for this purpose. It should also be appreciated that much of the congestion at Benapole/Petrapole is caused by present cumbersome procedure of unloading, weighing and reloading which are necessitated only because Bangladesh and India have not yet concluded a Commercial Motor Vehicles Agreement which would allow Bangladesh trucks to move unhindered, from Kolkata or any other point in India to any destination in Bangladesh or beyond. Studies show that the total delay (loss of time) in exporting a single shipment from India to Bangladesh is to the tune of four days (99 hours). The maximum loss of time takes place in the activity which includes parking, customs clearance and crossing of border and is followed by unloading at Benapole (99 hours). These studies show that on an average an Indian exporter incurs in sum an auxiliary transaction cost of the shipment value.
Equally important is the need to focus on the cheapest form of communication between the two countries, viz. the riverine route. Among the first Agreements signed between Bangladesh and India after the Liberation War was in 1972 under the leadership of Bangabandhu Sheikh Mujibur Rahman. This was the Inland Water Trade and Transit Protocol which was subsequently renewed in 1999. Implementation of its provisions, however, remains incomplete. The last meeting of the Standing Committee under this Protocol was held in September, 2001 and has not been held since, in spite of numerous requests by India. The early convening of this meeting will enable both sides to address important issues for improving bilateral riverine transport such as new ports of call, better navigational facilities, night time navigation and use of containerised cargo movement through barges to facilitate trade flows. The IWTT Protocol is being extended on an ad hoc basis by two months or three months at a time at present, leading to great uncertainty. India proposes that IWTT be extended by five years.
Equally efficient and financially viable, yet totally neglected, is the transport network between the two countries. One of the most active area of cooperation between Bangladesh and India should be in the railways sector. India has offered full assistance through credit lines, soft loans or grants for the modernisation of Bangladesh's railway network, including signalling and for the completion of such as Akhaura-Agartala rail link or broad gauging/double-gauging of agreed sections.
The use of containers for bringing in cargo by rail would not only greatly reduce the congestion on the land route but would also considerably streamline and smoothen the trade and commercial linkages between Bangladesh and India.
The future growth and development of Bangladesh is inexplicably linked with that of its neighbours. Connectivity is the key to such growth. The business communities in both countries must play a leading role in encouraging open-minded debate on the value of such connectivities on the mutual benefit in evolving win-win solutions on all issues.
Beyond the physical infrastructure, Bangladesh and India must seriously discuss improvements in the financial infrastructure for bilateral trade and economic relations. India has been trying to enhance cooperation between the banking sectors of both the countries.
The third meeting of the Banking Sub-Group of India-Bangladesh Joint Business Council was held at Mumbai and hosted by the State Bank of India (SBI) on November 25, 2004, after a gap of several years. Issues such as settlement of outstanding claims, address and disposal of public complaints against specific bank branches, facilitating forex handling by the Indian banks in the North Eastern States etc., came up for discussion during the meeting. India has proposed an early convening of the next meeting of the Banking Sub-group in Dhaka. Several issues including increasing incidence of non-payment of export bills of Indian exporters, need constant dialogue and discussion in search for mutually acceptable solutions. Strengthening of the financial infrastructure is today among the key factors for improving the confidence level of the business communities of both sides.
Finally, comes the need for improving the psychological infrastructure. By this, the need to overcome the negative mindset is meant. This mindset often colours every discussion, sometimes making the mindset more important than the reality in any situation.
The media, business communities, the Chambers of Commerce and Industries, all sections of society, who attach importance to positive progress in the relationship between Bangladesh and India must attach equal importance to preventing any unfortunate mindset, from obstructing a mutually beneficial search for solution. An open mind, combined with constant dialogue and interaction, will surely yield rich dividends for both sides.
There should be a forum where interested entrepreneurs from both sides can meet to discuss issues of common concern and recommend mutually agreed beneficial solutions. Perhaps, the two countries need to set up a Bangladesh India Business Forum dedicated to the bilateral trade, economic and investment issues. This suggestion merits serious consideration. (This is an edited version of the address by the High Commissioner of India, at a recent meeting in Dhaka, organised by Bangladesh Chamber of Industries)