Bangladesh and India Trade Facts

- Over 15% of Bangladeshi imports come from India.
- Bangladesh has a large trade deficit with India; this is offset by surpluses with other countries.
- Bangladeshi exports to India receive tariff concessions (under SAFTA).
- They account for less than 1% of total India’s imports.
- Illegal trade between the two countries amounts to 3/4 of regular trade

Bootlegging is big business in Bangladesh;

According to the 2002 surveys and some very approximate extrapolations from them, Bangladesh’s smuggled imports from India during 2002/03 were approximately $500 million, or about 40% of recorded imports from India, and approximately 30% of total imports (recorded plus smuggled) from India...

Smuggling and domestic indirect taxes. The various past studies of informal and illegal trade between India and Bangladesh, pay little or no attention to domestic indirect taxes i.e. in India, the central excise tax and the central and state sales taxes (the latter recently replaced in most states by a state VAT), and the VAT in Bangladesh. Yet these are very important for understanding the nature and modalities of the trade and its economic impact. In both countries agricultural products, livestock and fish are exempt from these taxes, and this is presumably one of a number of reasons why they dominate the estimates of “bootleg” smuggling. But manufactured products in India, including most processed foods, are subject to indirect taxes which are generally at least 20% (the 16% central excise tax plus sales tax or state VAT). If these products are purchased in India at retail, wholesale or even from the producing factories, the purchase prices will (or should in principle) include these taxes. Hence, if the goods are then smuggled over the border by the bootleg route, the indirect taxes are a kind of de facto export tax under which the Indian central government and an Indian state government (e.g. West Bengal) in effect taxes the eventual buyers in Bangladesh. Alternatively, since the smuggled goods presumably escape paying the VAT in Bangladesh, this amounts to a transfer from the Bangladesh government to the central and state government in India, insofar as the smuggled goods substitute for locally produced or legitimately imported goods that would have been subject to the Bangladesh VAT.

That’s from a recent World Bank report, “India-Bangladesh Trade, Trade Policies and Potential Free Trade Agreement”.