Economic ties between Bangladesh and India are far below potential, said a World Bank study.

Greater access to each other's markets, improvements in physical connectivity and transit, and energy trade between the countries can help unlock this trade potential, according to the report released in New Delhi on Monday.

The study -- unlocking Bangladesh-India trade: emerging potential and the way forward -- said greater engagement in these areas can also stimulate employment and other economic and social activities.

A wider integration will also help reduce poverty, particularly in the border areas, enhance foreign direct investment flows, and generate new business opportunities for the private sector, it said.

“Today, South Asia is one of the least integrated regions in the world. Greater bilateral economic cooperation between India and Bangladesh can serve as a critical step for an integrated South Asia,” said Isabel Guerrero, the World Bank's vice president for the South Asia region.

India is one of Bangladesh's primary trading partners. While Bangladesh has a high trade deficit -- more than $3.5 billion -- with India, its imports from Bangladesh have grown more than sevenfold between fiscal 2001 and fiscal 2012 to reach around $500 million. India's exports to Bangladesh rose fourfold to $4 billion.

Bangladesh accounts for less than 1 percent of India's total imports with a small range of items, mostly fertilisers and jute products. Though readymade garments constitute Bangladesh's major global export, their share in exports to India is very small.

Simulations in the World Bank study indicate that a bilateral free trade agreement between the two countries could increase Bangladesh's exports to India by 182 percent, and that of India to Bangladesh by 126 percent.

“For India, closer economic cooperation with Bangladesh can be an important stepping-stone to reduce the economic isolation of its northeastern states,” said the report.

To realise this potential, both the countries need to further liberalise trade, reduce tariffs (largely in the case of imports into Bangladesh), reduce and remove non-tariff barriers, and cut trade costs by improving trade facilitation both at borders and inland, according to the study.

The study suggested the two countries should go beyond trade in goods to deepen cooperation and improve Bangladesh's export capability.

“To enable larger gains, Bangladesh-India cooperation should go beyond goods trade and include investment, finance, services trade, trade facilitation, and technology transfer. This will be a building block toward the larger goal of enhanced regional cooperation,” said Sanjay Kathuria, one of the authors of the study and lead economist, regional integration, South Asia region.

The study observed that foreign direct investment would also help grow bilateral trade between India and Bangladesh. Inflow of direct investment from India would stimulate Bangladesh's exports, facilitate technology transfer, and generate employment.

"Both the governments need to facilitate trade by improving infrastructure at border trading posts, harmonising trade-related documentation, and minimising the restrictive element of non-tariff measures," Kathuria said.

"With the general decline in tariff barriers, addressing such costs of trading becomes paramount to ensure continued growth of trade that could, in turn, be a major force in poverty reduction, especially in border areas."

News: The Daily Star/Bangladesh/20th-Dec-12