Plugging the gaps on India-Bangladesh border haats

The question was raised by Mohini Datt, Operations Officer, Regional Integration (South Asia), World Bank.

“What will the border haats (markets) look like 10 years from now?” she asked at a consultative meeting organised by CUTS International in Guwahati.

The question is pertinent because at the end of this month, the commerce ministries of India and Bangladesh will renegotiate the agreement on border haats amidst concerns raised by the finance ministries of either country, especially Bangladesh, on the potential impact of the scheme on formal trade.

In 2010, India and Bangladesh agreed to open 10 weekly haats in remote border areas trade, of locally produced commodities, completely free from duties and taxes. Since India allows zero (customs) duty imports from Bangladesh (except 25 items on the negative list), the potential leakage is limited to the countervailing duty, which is identical to the excise duty on domestic produce. For Bangladesh, which enjoys import duty protection, the notional loss is wider.

However, neither country was particularly worried while signing the deal. The way they viewed it, the deal would merely meet small pockets of local demands within 5 km of the haat, replacing the informal trade.

Six years down the line, the experience of operating four haats (two each in Tripura and Meghalaya), tells a different story.

Popular demand forced authorities to relax restrictions on tradeable commodities and double the value cap on transactions to $100. Haats now trade in all commodities including some of third country origin goods (such as China-made LED lights) that should not be traded at all.

Fish and dried fish are popular import items from Bangladesh in two Tripura haats. Also coming in are food and horticultural products. Ideally, food items should undergo quarantine and testing before entering the Indian market.

That’s not all. The CUTS study — sponsored by World Bank — points out the negative impacts. It pointed out that big traders are using this avenue for large-scale transactions and procurements through front men. The pictures of long queues of vehicles reflect the fact that haats are no longer serving merely the needs of border communities.

It’s a new avenue of trade bypassing the customs check points, with each haat recording ₹4-crore transactions on an average on merely 52 days trading a year. It is anybody’s guess what the figure will look like if the frequency or number of haats increases.

That’s precisely the concern of customs authorities. Indian Commerce Ministry officials underplay the significance of tax leakage against a $6-billion surplus trade with Bangladesh.

However, they admit the concern. “There are reports of goods other than listed trading in good quantity,” said Bhupinder Singh Bhalla, Joint Secretary (South Asia/SAARC/SAFTA) of the Union Commerce Ministry.

That India is going slow in opening haats — despite making tall promises on paper — underlines the dilemma.

Ziaur Rahman Khan, Second Secretary of Bangladesh’s National Board of Revenue, was more precise. “The border haat is going beyond the policy goal,” he said, adding that the Board has alerted Bangladeshi policy makers.

Does it mean the border haat scheme be stopped, or killed by over-regulation? Probably not.

Industry and academia present at the meeting are unanimous that border haats must not eat into formal trade. But they also point out that the initial planning of haats was flawed. “There should be a natural demand for goods not produced locally in underserved areas,” said Enamul Haque, a Bangladeshi economist.

Haats can help either government to map new trade opportunities that can be converted into formal trade with the creation of necessary infrastructure.

Swapna Debnath, Additional Director of Commerce and Industries in Tripura, underlines the problem areas. Tripura has a huge appetite for fish and dried fish from Bangladesh. But India currently doesn’t have any testing and quarantine facility beyond Kolkata, nearly 1,800 km away.

The solution lies in either creating the infra or accepting third party certificates.