eco doc finals(1) sandesh

8/10/2019 Eco Doc Finals(1) SANDESH

1/15

DR. RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY

2014-2015

ECONOMICS

FINAL DRAFTForeign Trade with Bangladesh

Under Guidance of: Submitted by

Dr. MITALI TIWARI SANDESH NIRANJAN

Asstt. Prof. ( ECONOMICS) Roll No.115

Dr.R.M.L.N.L.U., LKo. I SEMESTER

SIGNATURE SIGNATURE


2/15

Table of Contents

1.

Acknowledgment...........................................................................................................3

2. Chapter:1 Introduction...................................................................................................4

3.

Chapter: 2 What is Foreign Trade................................................................................5-6

4. Chapter: 3 Foreign Trade between India & Bangladesh...............................................7-9

5. Chapter: 4 Trade Imbalance..........................................................................................10

6. Chapter: 5 Future of Foreign Trade b/w two nations...................................................11-12

7. Chapter: 6 Conclusion....................................................................................................13

8.

Bibliography..................................................................................................................14


3/15

Acknowledgment

I wish to express my sincere gratitude to Dr. MITALI TIWARI, Professor of

Economics, Department of Humanities, RMLNLU for providing me with the

opportunity of doing the project work on this topic Foreign Trade with

Bangladesh.

I would sincerely like to thank her, as without her support and guidance I

would not have been able to complete my project. I would also like to thank the

staff of Dr. Madhu Limaye library of Dr. Ram Manohar Lohiya National LawUniversity, Lucknow and my colleagues for their sincere cooperation and

assistance.


4/15

Chapter: 1 - INTRODUCTION

Foreign Trade is nothing but Trade between two nations. It arises because countries

differ in their demand for some kind of goods and in their ability to produce them; as

one country is able to produce some good but not in the quantity it requires e.g. USA

import oil; and in another country, workers and localities for production are better than

others & advantage they have cannot be transferred easily, so amount by which first

country is scarce in goods import that good from there and another country scarce in

whichever goods they import it from some other country which had it in lower cost and

abundance to export.

Among all Indias neighbouring countries, Bangladesh occupies a special position - not

only because of Indias role in its liberation but also because geographically too it

surrounds Bangladesh from three sides. It also shares the longest land boundary with

Bangladeshstretching 4,096 km. At many places, the border is porous, making it easy

for people to cross over and return to their place of domicile frequently. India and

Bangladesh could be grat natural trade partners due to geographical proximity and

ethnic ties; there exists a certain degree of trade complementarity between the two.

However, Bangladeshs imports from India are much higher than Indias from

Bangladesh. This is obviously because it has a much smaller resource and industrialbase as compared to India. However, certain types of goods from Bangladesh are

increasingly finding a ready market in India.

The beginning of close economic relations between the two countries can be traced back

to 1971. After its independence, Bangladeshs requirements of consumer goods,

especially food, came from India. Over the years, the country has sought easier access to

Indian markets for its own products. It has been active in seeking duty reduction and

elimination of non-tariff barriers that India imposes on imports from across the border.

Both Nations offer natural markets for each others produced products. Major items ofexport from India consist of food grains, cotton, yarn, and fabrics, made ups, machinery,

instrument, glass/glassware, ceramics and coal. On the other side, imports from

Bangladesh are principally made up of raw jute, jamdani sarees, inorganic chemicals,

leather, etc. In their mutual trade, they enjoy the advantages of reduced transaction costs

and quicker delivery due to geographical proximity, common language and a heritage of

common physical infrastructures. That is why soon after the liberalization of

Bangladesh, both the countries registered unprecedented growth in their foreign trade.


5/15

Objective of Study

To understand what is foreign trade and its importance.

To study complete foreign trade between India and Bangladesh.

To find out what are the imbalances are in the trade between the Nations.

To find out what will be the future of this foreign trade.

Methodology

The methodology adopted for the research on this doctrine is purely doctrinal

based mainly on secondary sources of data. A number of books, articles and

journals are referred in the construction of the project. Besides, authoritarian

views as well as ideas are also taken into account to provide a thoroughsupport to the project.


6/15

Chapter : 2 - WHAT IS FOREIGN TRADE ?

Foreign Trade is trade or exchange of goods & services between the different countriesof the world. In other words we can also say that the countries of all over world help each

other by exchanging their abundant resources and satisfying their scarcity in particular

resource. It is also called International trade, or External trade, or Inter Regional Trade.

Foreign Trade also plays an important role in the economic development of developing

nations.

Foreign Trade increases competition in markets of countries, then international product give

strong competition to domestic product. To protectdomestic trade,countries institute tariffs,

which are taxes on certain foreign goods. While this is a way to generate revenue, its real

value lies in helping those domestic companies. For example, to encourage domestic

production of ethanol in the United States, a tariff has been imposed on Brazilian ethanol.

This protects the ethanol market in the United States, which would not otherwise be able to

compete with Brazilian ethanol based on cost. In Brazil, ethanol is made from sugar, which

produces far more ethanol gallons per acre than corn, the primary crop used for ethanol in

the United States. In addition to tariffs, currency issues are another factor in foreign trade.

Some companies selling products overseas prefer to be paid in a certain type of currency,

such as the US Dollar or Euro. This protects the company in case the country involved in a

trade experiences a rapid devaluation in currency. Most foreign trade will always involve a

relatively stable currency.

Foreign trade can be divided in three groups:

1) Import Trade - It means inflow of goods and services from foreign country to home

country or Purchase of goods.

2) Export Trade - Export refers to outflow of goods and services from home country toforeign country or Sale of goods.

3) Entrepot Trade - It refers to purchase some goods from one country & then process

that good sell to another country. It is also known as re-export.

Importance of Foreign Trade

1)Division of Labour and Specialization- Foreign Trade leads to labour and specialization

at global level. Some countries have some resource in abundance and some have that

resource in scarce amount then the countries with abundant amount of resource give
http://www.wisegeek.com/what-is-domestic-trade.htmhttp://www.wisegeek.com/what-is-domestic-trade.htm


7/15

their raw resource to countries with skilled man power & get or import finished

goods.

2) Optimum allocation and Utilization of Resources - Due to specialization, unproductive

lines can be eliminated and wastage of resources avoided. In other words, resources

are channelized for the production of only those goods which would give highest

returns. Thus there is rational allocation and utilization of resources at the

international level due to foreign trade.

3) Equality of Prices - Foreign trade helps in providing a better choice to the consumers. It

helps in making available new varieties to consumers all over the world.

4) Ensures quality and Standard goods - Foreign trade increase the competition. To maintain

and increase the demand for goods, the exporting countries have to keep up the

quality of goods. Thus quality and standardized goods are produced.

5) Generate new and improved Employment Opportunities - Foreign trade helps in

generating employment opportunities, by increasing the mobility of labour and

resources. It generates direct employment in import sector and indirect employment

in other sector of the economy. Such as Industry, Service Sector (insurance, banking,

transport, communication), etc.

6) Promotes Peace in world - Foreign trade brings countries closer. It facilitates transfer of

technology and other assistance from developed countries to developing countries. Itbrings different countries closer due to economic relations arising out of trade

agreements. Thus, foreign trade creates a friendly atmosphere for avoiding wars and

conflicts. It promotes world peace as such countries try to maintain friendly relations

among themselves.


8/15

Chapter: 3 -Foreign Trade between India and Bangladesh

As we know that India shares its longest border boundary with Bangladesh than other itsneighbouring countries. Bangladesh is also a seceded part of India only thats why both thecountries also have somewhat same culture and ethics. Trade between both the countries is

going on before independence of Bangladesh in 1971 but informally.

In the gamut of economic relations of both the nations, trade transactions or Foreign Trade

have played a special role. Foreign Trade has emerged as a dynamic factor in recent years,

particularly after 1982 when Bangladesh embarked upon the path of liberalisation. India has

been the major beneficiary of the trade relations between the two countries. Bangladesh is

one of the most important markets for Indiasproducts. For the past several decades, it has

been the largest export market for India in the SAARC region. During 1985-90, the growthrate of Bangladeshs trade with India was higher than that with the world and SAARC

countries as a whole. During the period 1988-89 to 1992-93, whereas Indias total exports

increased by 164 per cent, the increase in exports to Bangladesh was 293 per cent. In 1995,

India jumped to the first position among exporters to Bangladesh, with China being a distant

second. India maintained the first rank until 2005-06 after which it was overtaken by China.

China has remained in that position until now. In 2011-12, Indias total exports to

Bangladesh reached the level of 5.84 billion dollars. To this should be added the substantial

volume of illegal exports which, according to some estimates, are as high as legal exports,

and the sizeable amount of trade in services for which estimates are not available. Thus,Indias total earnings from trade with Bangladesh, both legal and illegal and in goods and

services, may very well be in the range of 14 to 15 billion dollars per annum. This makes

Bangladesh one of the most important export markets for India in the world.

Bangladeshs exports to India, on the other hand, have been a very small percentage of its

imports from India. The percentages in 2007-08 and 2008-09 were 8.8 and 9.11 respectively.

There is a recent trend of impressive growth in Bangladeshs exports to India. In the year

2011-12, Bangladeshs exports to India reached the level of 584.64 million dollars.

However, they still remain a very small percentage of Bangladeshs imports from India.

In spite of the impressive performance in the trade front recently, the full potential of

economic cooperation between the two countries still remains to be realised. Except during

the first four years after the liberation of Bangladesh, there has been a lamentable lack of

planned and concerted efforts on the part of the two governments to nurture their economic

relations and impart dynamism to them. These relations have, by and large, grown on their

own, dictated by the logic of the market forces.

The minimum necessary legal and institutional infrastructure for underpinning economic

relations between the two countries has long been in place. These include bilateral trade

agreement, periodic trade review meetings, Joint Economic Commission, Joint RiversCommission, and Inland Water Trade and Transit Agreement. Besides, there are several


9/15

memorandum of understanding has been signed covering cooperation in specific areas.

However, in the absence of political push, these institutions have generally remained in

suspended state. There has been a welcome revival of the activities of some of these

institutions after 2010 under the present government in Bangladesh.

The economic reforms introduced by Bangladesh in 1982 and by India in 1991 have

inevitably brought about changes in the nature and forms of economic interaction between

the two countries. For one thing, the state is now playing a far diminished role in economic

cooperation which now rests more and more with private enterprises. However, the private

enterprises of the two countries, on account of the burden of their past suspicious attitudes

towards each other and the lure of the markets of developed countries, have not responded

adequately to the opportunities opened up by the process of liberalisation. Moreover, since

the trade liberalisation in both the countries proceeded on an MFN basis, the stronger

economic partner, that is, India, gained more from it than the weaker one, that is,

Bangladesh.

India's trade with Bangladesh has witnessed rapid growth in recent years. Currently, China is

the largest trading partner of Bangladesh. However, India is likely to emerge as the largest

trading partner in the coming years .

In terms of merchandise trade, the total trade has increased from USD 1 billion in FY2001 to

around USD 4.4 billion in FY2012. Currently, the trade balance is heavily in India's favour.

India's share in the bilateral trade is around 86 percent of the total trade. However, it can be

seen that Bangladesh's share is steadily increasing.


10/15

India's exports to Bangladesh reached USD 1 billion in FY2002, when exports jumped by

47 percent over the previous year. The next major jump in exports came in the FY2004

increasing by 48 percent to reach USD 1.74 billion by FY2005. In the following year,

exports declined by 6 percent and remained stagnant for the next two years. The FY2008

saw exports registering a phenomenal growth of 79 percent, reaching USD 2.92 billion.The global economic and financial crisis had an impact on Indian exports. Consequently,

Indian exports to Bangladesh declined by 15 percent in FY2009. The decline in exports

bottomed out the next year and recovered in FY2011, increasing by 33 percent to cross

USD 3.2 billion. The momentum in exports growth continued with a 17 percent increase

in FY2012 to reach USD 3.8 billion.

India's imports from Bangladesh have remained low, but are showing an increasing

trend. In the year FY2001, India imported USD 80 million worth of goods from

Bangladesh. The following year, imports declined sharply by 27 percent to USD 59

million. By FY2004 imports increased to USD 78 million, however there was a sharp

decline of 23 percent in the same in FY2005. In the subsequent seven years, imports

from Bangladesh increased in 6 years and declined in 1 year. The fiscal years 2006 and

2007, saw phenomenal increase in imports, growing by 114 percent and 80 percent

respectively. On back of this growth imports crossed USD 100 million in 2005-06 and

reached USD 228 million in FY2007. By FY2009 imports increased and reached USD 313

million, however declined in the following year, when the global trade had also

contracted. The decline in FY2010 was to the tune of 19 percent and reached USD 255

million. The following year saw a strong revival in imports reaching USD 447 million, an

increase of 75 percent in FY2011. The momentum continued in FY2012, importsincreased to USD 585 million an increase of 31 percent over the previous year's figure.

Bangladesh's share in India's total exports in South Asia was as high as 48 percent in

FY1997. By FY2001, this share declined to 41 percent and by FY2007 it further dipped to

23 percent. The following year, the share jumped 4 percentage points to reach 27

percent. Since then, the share has remained almost stagnant. In the FY2012, majority of

Indian exports in South Asia went to Sri Lanka (32%), Bangladesh (28 %) and Nepal

(21%).


11/15

Chapter : 4 - Trade imbalance

INDO-BANGLADESH Trade has remained lopsided, dominated by Indian exports, with

Indian imports from Bangladesh occupying very low levels. The trade deficit which was 476

million dollars in 1980 increased to 140 million in 1990 and then to nearly a billion in 2000.

It further increased from 1.5 billion dollars in 2003-04 to three billion dollars in 2007-08.

The latest available figures for 2011-12 show a trade balance in favour of India, of the

magnitude of 3.2 billion dollars.

This massive trade balance in favour of India should, however, be viewed in the proper pers-

pective. Any attempt by a country to balance its trade separately with each of its trading

partners will amount to the negation of the very concepts of free trade and comparativeadvantage. Because of the operation of these factors, India has had for decades a persistent

imbalance in its trade with almost all major developed countries. Bangladesh also runs

adverse balance of trade with several countries. In fact, its largest trade deficit today is with

China. In the year 2008, its trade imbalance with China was equivalent to 3.8 billion dollarsas against 2.8 billion dollars with India.

It is the overall balance of trade of a country and not the balance with individual trading

partners that has macro-economic implications. Even an overall trade imbalance need not be

of much concern if it can be offset by capital inflows and other forms of transfers from

abroad. Moreover, trade benefits both partners, even if it is imbalanced. For, imports can be

as important for an economy as exports. They can help export efforts and the general growthof the economy and act as an anti-inflationary force which benefits consumers and assists

producers in remaining competitive both in the domestic and foreign markets. In the case of

Bangladesh, a high percentage of its imports from India is in the nature of inputs, that is,

cotton yarn and textiles, meant for the production of its main export item, that is, readymade

garments. Besides, imports from India are market driven as they are cheaper and of higher

quality than from other sources.

However, in spite of the soundness of these arguments, Bangladeshs persistent and massive

negative balance of trade with India does have important adverse implications. As

psychological and political factors play an important role in the relationship between the two

countries, the large trade imbalance with India readily becomes susceptible to exploitation bypolitical parties, which can adversely affect future trade flows between the two countries.


12/15

Chapter: 5 -Future of Foreign Trade between the two

Nations

India accounted for more than 6 percent of Bangladesh's total exports in 1973. However, its

share declined to around 2 percent in 2011. On the other hand, India's share in Bangladesh

has slightly increased from around 12 percent in 1973 to around 14 percent in 2011. There is

immense scope for Indo-Bangladesh trade to flourish.

Indias look east policy can also be appliedto expand the trade in future :

The Northeast India would immensely benefit from increased trade relations with its

neighbours especially with Bangladesh. The NER shares a close relationship with

Bangladesh emanating from cultural, emotional and historical heritage.

India and Bangladesh share 4096 km long international border, of which almost 1880 km

is with the NER (1434 km is land border and 446 km is riverine tract). Four states of the

NER, namely, Assam, Meghalaya, Tripura, and Mizoram share international borders with

Bangladesh. With the exception of Meghalaya, the remaining NER states share both land

and riverine border with Bangladesh, among which Tripura and Mizoram have the

8 longest land and riverine borders with Bangladesh, respectively .

Potential sectors in which Both the nations can expand their trade

Energy

North Eastern states of India have hydropower energy of more than 63,000 MW . The

region is looking for business investments in the hydroelectricity sector through the build-

own operate and transfer basis.

Large untapped capacity for power generation in North Eastern India can feed power

starved Bangladesh. Thus, cooperation in this sector is a win- win situation for all.

Food Processing

The NER, which is a hub of fresh fruits and vegetables, can act as a source of rawmaterials for the growing food processing sector in Bangladesh. Furthermore, Indian

investment and technology can help strengthen Bangladesh's food processing sector.

Tourism

The NER of India offers unlimited tourism opportunities - with its moderate climate for most

of

the year, rare flora and fauna, naturals cenic beauty, unique performing arts, and varied

cuisine and handicrafts, the region is an ideal spot for tourism. Moreover, there is

considerable potential for expanding high - value tourism such as hill and adventure

14 tourism .


13/15

Thus, the area has every potential for becoming an upcoming tourist spot, specially for

neighbouring countries, including Bangladesh.

Manufacturing

Indian companies can set up manufacturing units in Bangladesh, where they cancapitalize on Bangladesh's low cost industrious labour, and source raw materials from

NER of India. Besides sale in Bangladesh, the manufactured products can be exported to

NER of India and rest of the world.

In this way, India's export of raw materials can be matched by its imports of

manufactured products from Bangladesh. This pattern of trade, if promoted in a large

scale, would certainly enable Bangladesh to export higher value added products and can

thus help reduce its large trade imbalance with India.

A study carried out by the World Bank finds that Bangladesh and India would both gain

by opening up their markets to each other. Indian investments in Bangladesh will be very

important for the latter to ramp up its exports, including products that would broaden

trade complementarity and enhance intra - industry trade, and improve its trade

standards and trade-handling capacity. A bilateral Free Trade Agreement would lift

Bangladesh's exports to India by 182 percent, and nearly 300 percent if transaction costs

were also reduced through improved connectivity. These numbers, based on existing

trade patterns, represent a lower bound of the potential increase in Bangladesh's

exports arising from a Free Trade Agreement. A Free Trade Agreement would also raise

India's exports to Bangladesh. India's provision of duty-free access for all Bangladeshiproducts (already done) could increase the latter's exports to India by 134 percent. In

helping Bangladesh's economy to grow, India would stimulate economic activity in its

own eastern and north-eastern states. Challenges exist, however, including non-tariff

measures/barriers in countries, excessive bureaucracy, weak trade facilitation, and

customs inefficiencies. Trade in education and health care services offers valuable

prospects, but also suffers from market access issues. To enable larger gains,

Bangladesh-India cooperation should go beyond goods trade and should include

investment, finance, services trade, trade facilitation, and technology transfer, and be

placed within the context of regional cooperation.Hence, these both the nations work towards its better trade relations then it will benefit to

both of them and they will create an good stand in South Asian Nations.


14/15

Chapter: 6Conclusion

BangladeshIndia relations over the years reflect the prominence of coercive elements in

Indias hegemonic role in South Asia. This perception will affect the development of

long term institutional relationships with smaller neighbours of South Asia. This was

Clearly reflected in Indiasaversion towards multilateral cooperation frameworks like

SAARC and the lack of reciprocation in trade and economic cooperation with countries

, as seen with Bangladesh.

The United States hegemony over the years achieved a boost with its involvement

with smaller and weaker neighbouring allies in several economic and security coopera

tion ventures like the NATO and NAFTA. But Indias influence in a regional context

results in discontentment on the part of weaker states. Thus, India should rely on aninstitutional doctrine with greater involvement with smaller and weaker neighbouring

states with an aim to aid their efforts to develop themselves in various fields.

The history of the formation of the European Union as a powerful regional bloc

shows a greater compromise on the part of bigger states like France and Germany to

achieve regional cohesion and peaceful relations. India, too, should prepare itself to

compromise oncertain fronts if regional cohesion and peace is to be achieved.

Indias relationship with all South Asian countries should not be dictated by its relations

hip with Pakistan and China, with whom it has undergone prolonged conflict and compet

ition. If India wishes to continue its relationship with Bangladesh, it needs to take a good

look at the stand it takes towards other South Asian countries also. A hegemonic stance by

India would have significant impact on the IndoBangladesh relations.

As by above provided data we can deduce that if India and Bangladesh co-operate with each

other then they can benefit by the foreign trade between them at large scales and now by

taking the diplomatic view both nations also want to expand the trade, the situation from

90s to now is completely changed and other issues which are obstacles in trade are also

reducing day by day as border killings are reduced from past years Both the countries are

taking firm steps ahead for increasing the trade as both countries are talking on many treaties

and MOUs and also they have already signed many.


15/15

Bibliography

Books

1) K.C. Gopalkrishnan; Legal Economics; EBC, 2005.

2) Meenakshi Dev Sharma; Principle of Economics; CLA, 2011.

Papers

1) India- Bangladesh economic relations; Loknath Aacharya, Ashima Marwaha; FICCI.

2) India-Bangladesh Relations: Towards Increased Partnership; Aspen Institute.

3) Indo-Bangladesh Brief; January 2013.

Articles

1) India-Bangladesh Relations : Issues, Problems, and Recent Developments, Piyali

Dutt.

2) Indo-Bangladesh Economic Realtions; Muchkund Dubey.

Web support

1) Wikipedia Search for Economic relation for the two nations

www.wikipedia.com

2) Ministry of external affairs for statistics and future prospects of trade.

www.mea.gov.in

eco doc finals(1) sandesh

Documents