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Bangladesh’s political turmoil: How India’s economy could be impacted by Hasina’s resignation

Published 18-08-2024, 03:35 pm
Bangladesh’s political turmoil: How India’s economy could be impacted by Hasina’s resignation
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The recent political upheaval in Bangladesh, marked by the resignation of Prime Minister Sheikh Hasina amidst widespread protests, is not just a domestic concern but also a development with far-reaching implications for its neighboring countries.

As Bangladesh navigates through this turbulent period, India—its second-largest trading partner and a competitor in the textile sector—is poised to feel both the positive and negative impacts.

The crisis could disrupt trade, affect the textile industry, and even influence India’s growing medical tourism sector, making it crucial to understand the potential outcomes for the Indian economy.

India-Bangladesh trade relations

Bangladesh is a significant trading partner for India, ranking as its 25th largest globally and the largest within South Asia.

In FY24, India’s exports to Bangladesh amounted to $11.1 billion, surpassing those to Nepal and Sri Lanka.

Key exports include petroleum products, cotton yarn, iron and steel, vehicle parts, and food products.

The ongoing crisis has raised concerns among Indian exporters, with the government closely monitoring the situation.

The political turmoil has already impacted the Indian stock market, with shares of companies like Marico (NS:MRCO), Pearl Global Industries, and Emami— which have substantial revenue streams from Bangladesh—experiencing declines.

Marico, for instance, saw a 4% drop due to potential disruptions in its Bangladesh operations, which contribute around 11-12% of its revenue.

Experts, however, are divided on the long-term impact on trade.

Amitendu Palit, Senior Research Fellow at the Institute of South Asian Studies, cautioned that the interim government’s ability to maintain stability is uncertain, which could complicate trade relations.

Indian exporters are already facing delays in payments due to Bangladesh’s foreign exchange shortage, a situation that may worsen, leading to reduced imports from India.

Stricter border controls and transportation challenges could further inflate costs for Indian exporters and importers alike.

Conversely, some analysts, such as Andrew Wood from S&P Global Ratings, argue that India’s diverse export profile diminishes the risk of a significant impact from the Bangladesh crisis.

Wood emphasized that India’s external position remains strong, and its overall trade position is unlikely to be severely affected by disruptions in bilateral trade with Bangladesh.

A mixed bag for India’s textile industry

The crisis in Bangladesh presents a mixed bag for India’s textile industry.

On one hand, spinners could face challenges as Bangladesh is a major buyer of Indian cotton yarn and fabrics.

On the other hand, apparel manufacturers in India might benefit from global buyers seeking alternatives to Bangladesh during the turmoil.

Bangladesh is a global textile powerhouse, second only to China in apparel exports, with major brands like H&M and Zara relying heavily on Bangladeshi factories.

The country’s textile industry, valued at $19.04 billion in 2024, is projected to grow to $25.25 billion by 2029.

However, the current unrest could tarnish Bangladesh’s reputation among international buyers, opening doors for Indian manufacturers.

This shift in buyer sentiment has already had a positive impact on Indian textile stocks.

Companies like Gokaldas Exports, Century Enka (NS:CNTE), and SP Apparels saw their shares rally by up to 18% following Hasina’s resignation.

Vikram Kasat, Head of Advisory at Prabhudas Lilladher, noted that the unrest could damage Bangladesh’s brand value, giving Indian manufacturers an edge in the global market.

However, the interdependence between the two countries complicates the situation. Indian textile companies benefit from lower labor costs and high production capacity in Bangladesh, which enables them to meet large orders efficiently.

The current crisis could disrupt these operations, leading to production delays and potential shortages.

Indian firms may be forced to explore alternative manufacturing bases, which could increase costs and affect their competitiveness.

Will it affect India’s medical tourism sector?

India’s medical tourism sector, which has been on a steady growth trajectory, could also be affected by the crisis in Bangladesh.

In 2023, international medical tourism to India grew by approximately 33% year-on-year, with Bangladesh contributing 50-60% of the total patients.

Factors such as cultural and linguistic similarities, high-quality treatment at competitive prices, and advanced healthcare facilities have made India a preferred destination for Bangladeshi patients.

However, the ongoing political unrest in Bangladesh has started to disrupt the flow of medical tourists.

CareEdge Ratings estimates a significant 80% drop in Foreign Tourist Arrivals (FTA) for medical treatment from Bangladesh in August 2024, with a gradual recovery expected later in the year.

Overall, the agency predicts a 10-15% decline in medical tourism from Bangladesh in 2024 compared to the previous year.

Despite this anticipated decline, the overall impact on India’s hospital sector is expected to be minimal. Medical tourism contributes only 3-5% of the sector’s total revenue, and treatments are generally non-discretionary, meaning they can only be delayed for a short period. CareEdge expects the sector to normalize by December 2024 as the situation stabilizes.

This article first appeared on Invezz.com

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