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The Persistence of Bangladesh’s Economic Growth: The China factor and India’s Security threat

The Persistence of Bangladesh’s Economic Growth: The China factor and India’s Security threat


Bangladesh is expected to become India’s fourth largest export destination in fiscal 2022, and currently ranks fifth. It indicates that Bangladesh has grown in its purchasing power capability. Bangladesh’s economic expansion has pushed it in this direction. Bangladesh has surpassed India in major social phenomena and is on track to overtake India’s economy in the near future. India’s concern that Bangladesh’s economic expansion may endanger its security is quite understandable.

Since its independence, Bangladesh has made great strides. Being battered by initial pessimism, refugees, wrecked infrastructure, and abandoned factories, it was left with no foreign exchange reserves. Natural calamities and famine had driven the economy to the brink of collapse, as seen by the 14% economic growth in 1975. Bangladesh’s prosperity is due to the presence of a single and central nation, a singular language and culture, the acceptance of diversity, authorizing privatization, and encouraging foreign investments.

The former “Banana Republic,” reliant on jute goods, had pushed the primary sector below the bottom of the list. Bangladesh now produces every second T-shirt. Backward linkages, such as garment accessory button and zipper manufacturers, are rising in lockstep with the RMG industries. Domestic industries, agriculture, tanneries, pharmaceuticals, glass, plastic, cement, and steel sectors are all nurtured by the government, resulting in an economic boom in clusters.


Shock absorbent of the pandemic:

Bangladesh, like every other country, was plagued by the epidemic and was compelled to institute a lockdown, which momentarily halted the economic progress that is dependent on ‘3Rs’: RMG, Rice and Remittance.

With the initial shock, the RMG sector had swung. Because ports were temporarily closed and delivery deadlines were missed, export orders were canceled. But, amazingly, the industry had rebounded in just a few months. Since the March 2020 shutdown, the months of July and August have witnessed more exports than the prior two years. Bangladesh’s agriculture industry handled the pandemic-induced shock remarkably. Apart from a few floods, the agriculture industry did admirably, cushioning any large-scale employment losses.

Bangladesh has substantial foreign reserves as well as a steady stream of remittances throughout the period, which offered some economic cushioning. During the epidemic, remittance inflows soared by a huge margin, and the government aided the process by providing incentives. It functioned as the primary shock absorber. Moreover, a stable macro- economy and static exchange rate is proved to keep the double-digit growth of Bangladesh going for a decade.


What lies ahead for Bangladesh:

Except for a few occasional setbacks, Bangladesh’s economy is thriving. Bangladesh’s economy has been booming despite the epidemic, while others have been suffering. Its economy will remain open to international investment. To entice such investments, Bangladesh has established hundreds of special economic zones, which house all manufacturing and exporting facilities and allow international investors to safely trade their currencies. Korea, Japan, China, and India have all invested in these special economic zones.

Bangladesh is likely to experience a transition shock when it graduates from LDC status. It will lose between 8% and 10% of its gross export gain. However, with domestic reforms such as increased labor productivity, improved tax collection, a lower tax-to-GDP ratio, and more domestic resource collection, the transition can be smoothed.


The China factor:

Bangladesh has benefited from the trade war between the United States and China, as well as the continual tug-of-war between India and China. Bangladesh’s physical proximity to China, as well as the two nations’ strong economic potential, suggests that China will become an even more important trade and development partner for Bangladesh in the coming years. China wants Bangladesh to join the Belt and Road Initiative, which benefits China’s economy. Another reason for China’s interest in Bangladesh is to limit Indian influence in the area, which it has mostly succeeded. All of India’s neighbors (Myanmar, Nepal, Sri Lanka, and Pakistan) have become targets for Chinese investment. Bangladesh’s geostrategic importance will provide China a broad reach over the Bay of Bengal, allowing it to keep a close eye on the Indian subcontinent if China can only persuade Bangladesh to fall into their debt trap. Until now, Bangladesh has been a shrewd operator. India, on the other hand, was concerned about the likelihood of Bangladesh joining Chinese hands.


Will India be a part of the economic growth?

Due to their differing economies and agility, India and China are unable to compete financially. China will have finished building a bridge or a number of motorways by the time India finalizes a contract. India must concentrate on historic relations and collaboration while also resolving first-generation issues such as the Teesta River problem and border killings. People in Bangladesh frequently perceive India as a bully and feel that Bangladesh has never received its fair share because they are unable to understand figures. India must pay previous debts and move forward to become Bangladesh’s economic and security partner.

The collaborative venture between Bangladesh and the DRDO’s Dhanush artillery Gun may develop ships, radars, and missiles. It will meet the needs of Bangladesh’s Armed Forces (which are controlled by Chinese businesses to the tune of 86 percent), as well as safeguard India’s strategic interests and promote the Indian government’s ‘Aatma-nirbhar Bharat’ flagship. The capacity of India and Bangladesh to share marine domain awareness can also be improved.

Bangladesh’s economic progress has a favorable impact on India’s economy because it is one of the country’s top export destinations. Bangladesh may be India’s sole neighbor who can support India both strategically and economically, and vice versa. Bangladesh, on the other hand, piques the interest of India’s adversaries. But India must remember, in geo-politics friends and foes may change, but the neighbors can’t be changed.

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