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Bangladesh is expected to become India’s fourth-largest export destination in 2022. This indicates that Bangladesh has grown in its purchasing power capability. Bangladesh’s economic expansion has pushed it in this direction. Bangladesh is on track to overtake India’s economy in the future. India’s concern that Bangladesh’s economic expansion may endanger its economic security is quite understandable.

Since its independence, Bangladesh has made great strides. Being battered by initial pessimism, refugees, wrecked infrastructure, and abandoned factories, it was left with no foreign exchange reserves. Natural calamities and famine had driven the economy to the brink of collapse, as seen by the 14% economic growth in 1975. Bangladesh’s prosperity is due to the presence of a single and central nation, a singular language and culture, the acceptance of diversity, authorizing privatization, and encouraging foreign investments.

The former “Banana Republic,” reliant on jute goods, had pushed the primary sector below the bottom of the list. Bangladesh now produces every second T-shirt. Backward linkages, such as garment accessory button and zipper manufacturers, are rising in lockstep with the ready-made garment industries. Domestic industries, agriculture, tanneries, pharmaceuticals, glass, plastic, cement, and steel sectors are all nurtured by the government, resulting in an economic boom in clusters.

Shock absorbent of the pandemic

Bangladesh, like every other country, was plagued by COVID and was compelled to institute a lockdown, which momentarily halted economic progress that is dependent on the ready-made garment industries, agriculture, and remittances.

With the initial shock, the ready-made garment sector had swung. Because ports were temporarily closed and delivery deadlines were missed, export orders were canceled. But amazingly, the industry has rebounded in just a few months. Since the March 2020 shutdown, the months of July and August have witnessed more exports than the prior two years.

Bangladesh’s agriculture industry handled the pandemic-induced shocks remarkably well. Apart from a few floods, the agriculture sector did well, cushioning any large-scale employment losses.

Bangladesh has substantial foreign reserves as well as a steady stream of remittances throughout the period, which offered some economic cushioning. During the pandemic, remittance inflows soared, and the government aided the process by providing incentives. It functioned as the primary shock absorber. Moreover, a stable macro-economy and static exchange rate will keep the double-digit growth of Bangladesh going for a decade.

What lies ahead for Bangladesh

Except for a few occasional setbacks, Bangladesh’s economy is thriving. Bangladesh’s economy has been thriving despite the pandemic, while others have been suffering. Its economy will remain open to international investment. To entice such investments, Bangladesh has established hundreds of special economic zones, which house all manufacturing and exporting facilities and allow international investors to safely trade their currencies. South Korea, Japan, China, and India have all invested in these zones.

Bangladesh is likely to experience a transition shock when it graduates from LDC status. It will lose between 8% and 10% of its gross export gain. However, with domestic reforms such as increased labor productivity, improved tax collection, a lower tax-to-GDP ratio, and more domestic resource collection, the transition will be smooth.

The China factor

Bangladesh has benefited from the trade war between the United States and China, as well as the continual tug-of-war between India and China. Bangladesh’s physical proximity to China, as well as the two nations’ strong economic potential, suggests that China will become an even more important trade and development partner for Bangladesh in the coming years. China wants Bangladesh to join the Belt and Road Initiative, which benefits China’s economy. Another reason for China’s interest in Bangladesh is to limit Indian influence in the region, which it has mostly succeeded. India’s neighbors have become targets for Chinese investment.

Bangladesh’s geostrategic importance will provide China a broad reach over the Bay of Bengal, allowing it to keep a close eye on the Indian subcontinent if China can only persuade Bangladesh to fall into its debt trap. Until now, Bangladesh has been a shrewd operator. India, on the other hand, was concerned about the likelihood of Bangladesh joining Chinese hands.

Will India be a part of the economic growth?

Due to their differing economies and agility, India and China are unable to compete financially. China will have finished building a bridge or a number of motorways by the time India finalizes a contract. India must concentrate on historic relations and collaboration while also resolving first-generation issues such as the Teesta River problem and border killings.

Bangladesh’s economic progress has a favorable impact on India’s economy because it is one of the country’s top export destinations. Bangladesh may be India’s sole neighbor who can support India both strategically and economically and vice versa. Bangladesh, on the other hand, piques the interest of India’s adversaries. But India must remember, in geopolitics, friends, and foes may change, but neighbors can’t be changed.

Benedict George is a Ph.D fellow at the University of Texas, having a Master's degree in Strategic Studies. His area of interest is in Asian Foreign Politics.