India Bangladesh Transit Treaty (Part II): Expanding The Horizons of Connectivity

    LightCastle Analytics Wing
    LightCastle Analytics Wing
    Bangladesh-India Transit

    The transit agreement between India and Bangladesh, which started back in 2010, has now spanned to cover four routes of transport: rail, road, inland waterway, and sea route. Experts believe the agreements will allow Bangladesh to increase trade with its neighbours, earn huge amounts of revenue, and enhance connectivity. However, in reality, Bangladesh has still not been able to get the most benefit from the agreements.

    In this article, LightCastle Partners takes a look at the current status of the available transit routes and the challenges facing Bangladesh in gaining the full benefits of open transit. This article also takes a look at how Bangladesh can overcome these adversities and use the transit as a way to enhance greater regional connectivity. 

    Existing transit arrangements not benefiting Bangladesh much

    Currently, Bangladesh provides transit facilities to India on three modes of transport: inland water, rail, and coastal shipping. Once finalized, the Bangladesh-Bhutan-Nepal-India (BBIN) Motor Vehicle Agreement, which has already been piloted, will add a fourth mode to the existing facilities. Although adding new modes increases the potential benefits, Bangladesh needs to consider how it can reap fruits from both its existing arrangements and the new developments. 

    Inland waterways routes not used as intended, hurting revenues

    Under the renewed Protocol on Inland Water Transit and Trade (PIWTT) between Bangladesh and India, there are ten water routes, known as Indo Bangladesh Protocol (IBP) routes. There are also eleven ports of call and two extended ports of call each, on both nations.[1] The contract, along with its renewal, gives Bangladesh the opportunity to connect more with the northeastern states of India as well as with Bhutan and Nepal.

    Figure: India-Bangladesh Protocol Routes under the PIWTT (before renewal in 2020)/Source: Dhaka Tribune

    However, the utilization of the inland waterway transit by Indian vessels remains below anticipated levels. Statistics by Bangladesh Inland Water Transport Authority (BIWTA) shows that the ratio of goods carried by Bangladesh to Indian vessels along the routes for transit and trade purposes is 95:5 for the FY 2019-20.[2] The low level of cargo from India means Bangladesh earns very little as transshipment fees. A study by the Indian High Commissioner in Dhaka found the lack of navigability, lack of container facilities in Ashuganj port, and the long-distance of custom offices from the ports as some reasons for Indian carriers to not operate using Bangladesh’s inland water routes.[3] 

    Rail routes’ potential unutilized until recently

    Currently, four railway routes are operational between Bangladesh and India: Petrapole-Benapole, Gede-Darshana, Singhabad-Rohanpur, and Radhikapur-Birol. Three railway routes are under construction: Akhaura-Agartala, Karimganj-Shahbazpur, and Haldibari-Chilahati.  The addition of these routes will allow greater transit between India and its northeastern states. At the same time, Nepal and Bhutan can use the routes to access the Mongla Port of Bangladesh. 

    Figure: Rail routes between India and Bangladesh/Source: Dhaka Tribune

    Till the middle of this year, there were no facilities for running cargo by train using the routes. In July 2020 for the first time, a cargo train was able to transfer consumer goods and fabrics from Kolkata to Benapole in just three-and-a-half hours.[4] So till June, Bangladesh did not utilize a faster, safer, and sustainable substitute to the existing transshipment facilities. Most of the existing trade between India and Bangladesh takes place through the Benapole-Petrapole land ports. Due to the lack of infrastructure in both land ports, congestion occurs which delays the delivery of goods from one nation to the other. Trains can be a viable alternative.

    Coastal shipping too may not reap benefits for Bangladesh

    Bangladesh and India signed a coastal shipping agreement back in 2018 which allows  India to use the Chattogram and Mongla ports for transporting goods to the states of Tripura, Assam, and Meghalaya. From the ports, goods will be transported to these states using a combination of road, rail, and waterways. Although Bangladesh may benefit from the infrastructure projects taking place to facilitate this transit, it might not get any other benefits from the agreement.

    There are no transit fees or customs duties for India under the agreement. Indian cargoes just need to pay administrative fees to Bangladesh.[5] This means Bangladesh will be missing out on a sizeable revenue once goods are transported following the finalization of the agreement. Another reason for which Bangladesh will not be able to bear fruit of this agreement as well, is the restriction that prohibits vessels from carrying goods from third-party countries to either of the two territories. As a result, goods bound for Bangladesh from third-party countries are sent to Singapore or Colombo where they are held for a month before smaller vessels can take them to Bangladesh.[6] 

    BBIN can provide opportunity for greater transit benefit and connectivity

    The Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicles Agreement (MVA) was signed by the four participating nations back in 2015. The agreement allows signatory states to use each other’s road networks for the transportation of goods and passengers. Cargoes can be passed without the need for transshipment: reducing time and costs. A trial involving an Indian truck transporting goods from Kolkata to Agartala via Dhaka in 2015 under the agreement showed distance saved by more than half.[7]

    Figure: BBIN Routes/Source: The Annapurna Express

    The BBIN-MVA may encourage more transit by Indian vehicles from the Indian heartland to the northeastern states. At the same time, it opens up Bangladeshi cargo movements to the three participating nations. Implementation of the deal remained stalled as there was opposition to the agreement by Bhutan. However, Bhutan has allowed the other three nations to finalize protocols under the agreement. The remaining three nations have agreed to finalize protocols on passenger and cargo protocols early this year.[8]

    Financing remains slow, hampering transit projects

    Another reason why Bangladesh is not getting much benefit from the transit is due to the slow buildup of required infrastructure. India has provided four Lines of Credit (LoC) worth USD 7.8 billion to Bangladesh since 2010.[9] Bangladesh is using the first three LoCs to develop the infrastructure required for facilitating transit movements. 

    However, the disbursement of capital through the LoCs has been slow. Of the total USD 7.8 billion credit, only around 9 percent or USD 686.08 million has been disbursed to Bangladesh till FY 2019-2020.[10] Low utilization of the fund has lead to a slowdown in building infrastructure required for transit: Only two projects out of the planned 15 in the second LOC has been completed and no projects have yet been completed in the third LOC.The EXIM Bank of India, responsible for distribution of credit, takes a lengthy bureaucratic process to approve every project Bangladesh proposes. On the Bangladesh side, the sending of the bills is also a lengthy process: bills are processed from the project director office to the project implementing agency, then to line division/ministry, next to the Economic Relations Division, from there to the Indian High Commission and finally to the EXIM Bank of India.[11] 

    How can Bangladesh reap greater benefits?

    As the existing arrangements do not provide much benefit, Bangladesh should consider making changes that provide it greater benefits. Some ways the country can achieve such are:

    1. Removing red tape to expedite infrastructure development: Due to bureaucracy from both sides, infrastructure projects take a long time for even starting. The delay causes costs to rise up. Bangladesh and India can expedite the process by directly sending the bill from the line ministry to India’s EXIM Bank. 
    2. Use new inland water ports for promoting regional connectivity: Bangladesh can use the new water ports under the renewed PIWTT as an alternative to connect to Bhutan. The latter has been reluctant to sign the BBIN Motor Vehicle Agreement as it may increase the number of motor vehicles inside its territory and threaten its strict environmental regulations. Water transport provides a sustainable alternative that can be welcomed by Bhutan. 
    3. Allow third party goods to be transported under the coastal shipping agreement: If third party goods are allowed to be transported under the coastal shipping agreement, Indian vessels can carry Bangladesh bound goods from Chennai, Visakhapatnam, or Kolkata ports to Bangladesh territory. This will save time and costs: an estimate puts the savings at USD 37.5 million per year. It will also reduce congestion at the Chattogram seaport. Furthermore, lead time for the RMG sector, a major user of port facilities in the country, can be decreased.[6]
    4. Export products through return cargoes: Indian vessels are not interested in using the transit routes under the inland waterway agreement as they cannot bring in any return cargo. The main industry of the northeastern states is agriculture and thus the major products that can be brought by return cargo are perishable farm produce, which gets rotten due to the long journey.[3] Bangladesh can use India’s water vehicles to export apparel and clothing items to the country using the transit routes. Apparel and clothing items comprise more than a quarter of Bangladesh’s exports to India.[12] So, Indian carriers will be interested in using the return cargo for transporting these items. Moreover, Bangladesh can reduce its over-reliance on the Benapole land port. 

    The road ahead: India-Bangladesh Transit as a gateway to greater regional connectivity

    The transit routes between India and Bangladesh should be seen as a stepping stone for Bangladesh to connect with other nations in the region. The road and rail transit routes, both existing and proposed, can also be a part of the Trans-Asian highway and railway projects. These projects can help Bangladesh connect with countries as far as Japan and Bulgaria by land routes. The coastal shipping agreement between India and Bangladesh can also lead to a greater BIMSTEC coastal shipping agreement which can increase trade between the member countries.

    The railway routes can also help Bangladesh connect with the southeast Asian region. India is trying to connect with the region through rail as part of its “Act East Policy.” As India’s railroads run on broad gauge and those of ASEAN run on meter gauge, there are issues with interoperability which is hindering the connectivity project. Bangladesh, which has both broad gauge and meter gauge lines, as well as dual gauge to facilitate interoperability among the two, can provide transit for India and ASEAN states. Utilizing the now undergoing Akhaura-Laksham and Dohahazari-Ramu dual gauge rail projects, Bangladesh can connect India with Myanmar and be a part of the connectivity project.

    Increasing connectivity among regional partners can bring out a lot of benefits for Bangladesh. Intra-regional trade among South Asian nations (including Myanmar) amounts to only 5.6 percent of the region’s global trade.[13] On the other hand, Trade between EU countries ranges from 50 to 75 percent of each country’s trade. Such a low proportion suggests there is potential for further increasing intra-regional trade. Increased connectivity can accelerate trade, attract FDI, and mitigate conflicts in the region.

    Farhan Uddin, Content Writer and Saif Nazrul, Senior Business Consultant at LightCastle Partners, have prepared the write-up. For further clarifications, contact here: [email protected]

    References

    LightCastle Analytics Wing

    LightCastle Analytics Wing is the research division of LightCastle Partners. It is tasked with producing periodic reports on the different sectors of the economy, analyzing trends in markets and making methodical, thorough and intelligent analysis to improve strategy and drive business growth.