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India’s termination of the transhipment deal with Bangladesh reflects deeper diplomatic tensions amid Dhaka’s pivot towards China and highlights growing regional fragility
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According to a notification issued by India’s Central Board of Indirect Taxes and Customs, New Delhi has revoked the transhipment facility that allowed Bangladesh to export goods to third countries via Indian land customs stations, ports, and airports. Effective 8 April, this move can disrupt Dhaka’s commerce with several countries. It involves terminating a 2020 agreement between the two countries that allowed Bangladeshi exports to be routed through India’s transhipment facilities. Cargo that has already entered Indian territory is allowed to pass. The Indian government has ascribed this decision to complaints from Indian exporters about logistical delays, rising costs, and congestion occurring at its ports and airports due to Bangladeshi cargo. However, there is more to this decision than the above-cited reason. After all, India has provided one-way, zero-tariff access to Bangladeshi goods to the vast Indian market for the past two decades. Therefore, this decision and its implications must be analysed against the broader context of India-Bangladesh relations, which have been going downhill since the regime change in Dhaka last August.
The Indian government has ascribed this decision to complaints from Indian exporters about logistical delays, rising costs, and congestion occurring at its ports and airports due to Bangladeshi cargo.
Nationwide protests that led to the ouster of the former Prime Minister, Sheikh Hasina, from Bangladesh had a distinct anti-India chord, due to New Delhi’s support of the Awami League administration. Subsequently, Hasina’s continued shelter in India in the face of an extradition plea and the reported recurrence of attacks on Hindu minorities in Bangladesh complicated matters. The new interim government's repeated attempts to pin blame on India for its domestic chaos and its marked attempts to strengthen ties with Pakistan and China without consideration of India’s strategic sensitivities have further significantly undermined the once-flourishing bilateral relationship between the two neighbours. Matters came to a head when Yunus made a controversial statement on India’s Northeast during his first state visit to Beijing in late March. Addressing the Chinese President Xi Jinping, Yunus remarked, “The seven states of eastern India, known as the Seven Sisters, are a landlocked region. They have no direct access to the ocean. We are the only guardians of the ocean for this entire region. This opens up a huge opportunity. It could become an extension of the Chinese economy—build things, produce things, market things, bring goods to China and export them to the rest of the world.”
Besides the politically questionable move of using a third country as a bargaining chip in bilateral negotiations, Bangladesh has also reportedly invited Chinese investment to revitalise the airbase at Lalmonirhat. Situated in northwestern Bangladesh, Lalmonirhat is closer to India’s Sikkim, the districts of Jalpaiguri and Cooch Behar in West Bengal, and the narrow Siliguri Corridor connecting India’s Northeast to the rest of the country. The Northeast is a politically sensitive region, prone to insurgencies and a border dispute with China in Arunachal Pradesh. Naturally, New Delhi is cautious of the security in this region, and any proposal to station Chinese fighter jets in its proximity carries serious security implications for India.
The Northeast is a politically sensitive region, prone to insurgencies and a border dispute with China in Arunachal Pradesh.
Yunus’s statement, therefore, is not only contentious but also reveals the interim government’s political inexperience. It reflects a marked disregard for India’s strategic sensitivities, which once formed the foundation of a cooperative bilateral relationship between the two neighbours, sharing the world’s fifth-longest border and deeply rooted interdependencies. It also shows a lack of understanding about Bangladesh’s geopolitical reality. While India’s landlocked Northeast can certainly benefit from a more convenient access to the Bay of Bengal via Bangladesh’s ports, it can still access the sea via the Kolkata Port in West Bengal. Indeed, India has the longest coastline in the Bay of Bengal and also owns the operational rights to the Sittwe Port on the Myanmar coastline. Consequently, the assertion that Dhaka is the “Guardian of the Ocean” overstates Bangladesh’s role and overlooks the broader regional maritime geography, which is a collaborative space for all the Bay littoral countries. Moreover, Bangladesh itself relies on India’s Northeast for its transit trade to Nepal and Bhutan, and on India’s trans-shipment facilities for a substantial load of its overseas trade. New Delhi’s decision to retract transhipment facilities has, therefore, affected Bangladesh’s exporters, especially the front-running Ready-Made Garment Industry (RGM).
Bangladesh’s ready-made garment industry, spanning 4,000 factories, exported 35000 tonnes of garments worth approximately US$ 0.5 billion to 36 countries in the last financial year. The Bangladeshi economy is export-infrastructure deficient. Dhaka Airport and the Chattogram port are the only air and oceanic routes available for Bangladeshi exports. Other connectivity facilities such as the Pangaon container terminal in Dhaka and the Mongla and Ashuganj ports handle very limited capacity of commodities and containers and are not suitable for ready-made garment exports which is a JIT (Just-in-Time) industry. On the other hand, India’s New Delhi airport’s 150-acre cargo facility, equipped with integrated terminals, a logistics centre, and extensive airline connectivity, is linked to Bangladesh via road and rail through Kolkata. Despite domestic resistance and potential terminal congestion, India offered this advanced infrastructure to Bangladesh at no cost, covering environmental expenses as a goodwill gesture towards a coveted neighbour.
The Bangladeshi economy is export-infrastructure deficient. Dhaka Airport and the Chattogram port are the only air and oceanic routes available for Bangladeshi exports.
The termination of this facility will have wide-ranging ramifications for Bangladesh in the long-term scenario. Bangladesh’s RGM industry is already reeling under the shocks of the Red Sea supply chain crisis and the Ukraine war, (due to which shipments to Europe and North America have to be rerouted through the Cape of Good Hope instead of the shorter Suez canal route) alongside the disruptions faced due to the regime change in Bangladesh and the US reciprocal tariffs (currently stalled).
Reduced connectivity between India and Bangladesh also derails the progress of the Bangladesh-Bhutan-India-Nepal (BBIN) Corridor, which had been gathering steam since 2021. The fraught relationship between India and Bangladesh does not bode well for South Asia. South Asia remains the least economically integrated region globally, with intra-regional trade accounting for just 5 percent of total trade—far behind ASEAN (25 percent), North America (40–50 percent), and the EU (60–65 percent). The situation underscores the region’s vulnerability and the urgent need for resilient, mutually beneficial trade frameworks capable of withstanding political and economic disruptions. Additionally, limited connectivity paradigms between India and Bangladesh can also potentially derail the ambitious economic, energy and transport connectivity plans of the Bay of Bengal Multi-Sectoral Technical and Economic Cooperation (BIMSTEC), under the BIMSTEC Master Plan for Connectivity announced during the 6th Summit Meeting in Bangkok. Under this plan, the BIMSTEC countries plan to invest US$ 124 billion for over 250 projects in the Southern Asia region.
Cancelling transit facilities would have affected the landlocked Himalayan countries, which rely considerably on Bangladesh’s port for overseas trade.
Interestingly, although Yunus’s remark portrayed India’s Northeast as a region of strategic vulnerability, New Delhi did not revoke Dhaka’s transit trade rights through this territory. This has two diplomatic motivations; first, to make the interim government realise the Northeast’s value, as a critical hinterland and transit territory for Bangladesh’s own third country trade, especially in light of the terminated transhipment facilities; and second to showcase India’s commitment towards its bilateral ties with Nepal and Bhutan, and the development of the Bay of Bengal region, at a time when its bilateral ties are strained with Bay littorals- Bangladesh and Myanmar. Cancelling transit facilities would have affected the landlocked Himalayan countries, which rely considerably on Bangladesh’s port for overseas trade. New Delhi seeks a stable and prosperous Bay of Bengal region, manifested in the recent sixth Summit meeting of the BIMSTEC at Bangkok, where multiple initiatives were undertaken for greater regional cooperation. The Bangladesh Chief Advisor had sought a meeting with the Indian Prime Minister, Narendra Modi, on the sidelines of this meeting, and both sides discussed current challenges, urging cooperation. These intentions as yet remain on paper. In this delicate phase of India-Bangladesh ties, strategic prudence and mutual recognition of regional interdependence are not only crucial for bilateral stability but for the broader Bay of Bengal architecture that both nations have long invested in.
Sohini Bose is an Associate Fellow at the Observer Research Foundation.
Prithvi Gupta is a Junior Fellow with the Strategic Studies Programme at the Observer Research Foundation.
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Sohini Bose is an Associate Fellow at Observer Research Foundation (ORF), Kolkata with the Strategic Studies Programme. Her area of research is India’s eastern maritime ...
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Prithvi Gupta is a Junior Fellow with the Observer Research Foundation’s Strategic Studies Programme. Prithvi works out of ORF’s Mumbai centre, and his research focuses ...
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