India may reassess its decision to enter into negotiations for a proposed Free Trade Agreement with Bangladesh if the neighbouring country goes ahead with its intention of joining the China-backed Regional Comprehensive Economic Partnership bloc, sources have said.

“The Commerce Department plans to evaluate the impact of Bangladesh’s possible entry into RCEP on the Indian industry before it gets into a situation where the two countries could work out an FTA,” a source tracking the matter told businessline.

News about Bangladesh’s intention to join the RCEP after its general elections early next year has made India wary and cautious as Bangladesh already imports much more from China, than from India, and Chinese imports would go up further on its entry into the RCEP, the source said.

“Under such circumstances, an India-Bangladesh FTA could facilitate flow of Chinese goods  into India from Bangladesh through the FTA route by circumventing rules of origin. (ROO). This could create a big problem for the Indian industry,” the source said.

Prime Minister Narendra Modi and his Bangladeshi counterpart Sheikh Hasina had agreed to start negotiations on a India-Bangladesh Comprehensive Economic Partnership Agreement (CEPA) during the latter’s visit in September 2022 to give a boost to bilateral trade and investments.

Interestingly, concern about Chinese goods swamping India was the primary reason behind India’s decision to stay out of the RCEP, which now includes the ten-member ASEAN, Japan, South Korea, Australia and New Zealand, apart from China. While India had the option of not offering to China the same tariff concessions that it offered to some others in the RCEP, it feared that Chinese goods may flow in from other member countries by circumventing ROO.

India’s trade deficit with China in 2022-23 at $83.19 billion accounted for almost a third of the country’s total trade deficit as Chinese imports increased to $98.5 billion during the fiscal while exports went down to $15.3 billion.

Developing market status

Bangladesh is keen to get into the RCEP as well as forge an FTA with India as it will graduate out of its Least Developing Country (LDC) status in 2026 and will need to give up concessions associated with it. As a LDC member of the South Asia Free Trade Agreement (SAFTA), Bangladesh enjoys duty free quota free access for most of its items into the Indian market which it would lose after 2026.

Getting into free trade pacts with its trade partners is a sure way for Bangladesh to continue enjoying preferential access into their markets even after it gains developing country status.

India enjoys a trade surplus with Bangladesh with its exports to the country in 2022-23 at $12.21 billion and imports at $2.02 billion. “India’s exports to Bangladesh in the current fiscal have slowed down because of the economic situation in the country but that is not an area of major worry,” the source said.