Delhi at loggerheads with Islamabad amid trade war with Bangladesh

New Delhi has revoked the system that allowed Bangladeshi goods to be exported to third countries via Indian territory. Dhaka responded by suspending imports of cotton yarn from India through five border crossings, including Benapole and Bhomra. In the background are India's concerns after Yunus's overture to China.

New Delhi (AsiaNews) - More than a week after the 22 April massacre in Kashmir in which an Islamist commando killed 26 Indian tourists, there is no sign of easing tensions between India and Pakistan.

In addition to diplomatic retaliation, including the revocation of the agreement on river water management and the closure of the Attari border crossing and Indian airspace to Pakistani aircraft, Islamabad has spoken in recent days of ‘military raids’ that New Delhi is allegedly preparing.

Pakistani President Asif Ali Zardari and Prime Minister Shehbaz Sharif have vowed to respond to any act of aggression in an ‘appropriate manner’.

While this clash is now out in the open, another has been simmering beneath the surface for months. Almost a year after the departure of former Bangladeshi Prime Minister Sheikh Hasina, relations between Dhaka and New Delhi remain tense.

The friction now extends beyond religious minorities and the spread of disinformation to trade between the two Asian countries, already in deep trouble due to tariffs imposed by the US administration led by President Donald Trump.

In recent weeks, a sort of mini trade war has taken place between India and Bangladesh: on 8 April, India revoked the transit facility granted to Bangladesh in 2020, which allowed Bangladeshi goods to be exported to third countries via Indian territory.

According to Indian Foreign Ministry spokesman Randhir Jaiswal, the decision was motivated by ‘congestion in our ports and airports’, but he also stressed that ‘certain developments’ in Bangladesh had influenced this choice.

In response, on 13 April, Bangladesh suspended imports of cotton yarn from India through five border crossings, including Benapole and Bhomra. The decision was justified by the authorities in Dhaka as necessary to protect local producers from competition from Indian yarn, which is considered cheaper and often smuggled, according to local producers.

The Bangladesh Textile Mills Association had previously urged the government to intervene. The Ministry of Commerce had already submitted a request to suspend imports to the government led by Nobel Peace Prize winner Muhammad Yunus on 27 March.

However, the measures are damaging Bangladesh's garment sector, which accounts for about 80% of exports. The suspension of Indian yarn imports through land border crossings is forcing manufacturers to resort to longer and more expensive sea routes, increasing production costs (estimated to have already risen by 17%) and delaying deliveries, risking to compromise an entire sector already severely affected by US tariffs, which amount to 37% on Bangladeshi exports.

India (which has been hit with a 27% tariff by Trump) is also in trouble: in 2024, Bangladesh accounted for 45.9% of India's total cotton yarn exports, worth .57 billion.

These trade tensions are the result of a complex political context: India has offered asylum to former Prime Minister Sheikh Hasina, who fled after widespread anti-government protests led by university students in August last year.

Since then, diplomatic relations have gradually cooled, despite a meeting on the sidelines of the BIMSTEC summit in early April between Modi and Yunus.

Last month, Yunus visited China and described Bangladesh as ‘the sole guardian of the ocean’, suggesting a desire to deepen cooperation with Beijing. These statements have caused irritation and concern in Delhi, which fears a blockade of the Siliguri Corridor, a narrow strip of land connecting north-eastern India to the rest of the country.

India also condemned the recent killing of a Hindu leader on 17 April. The Indian Ministry of Foreign Affairs called the incident a ‘systematic pattern of persecution of Hindu minorities under the interim government’ of Bangladesh.

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