Amid worsening ties, neighboring Bangladesh and India have recently imposed strict trade restrictions on each other. Businesses in both countries are now preparing for the potential impact. Last month, Bangladesh restricted the import of yarn via land routes from India to protect its local industry. This decision came just days after India suddenly revoked a transshipment facility that allowed Bangladesh to export goods to third countries via Indian land and airports.

With trade tensions rising, businesses on both sides have begun calculating the increased cost of transporting goods. A report by British news outlet BBC highlights these developments.

Yarn is vital for Bangladesh’s garment factories. While road transport has been restricted, imports via sea and air routes are still permitted, although these options are slower and more expensive. In 2024, India exported $1.6 billion worth of yarn to Bangladesh, a third of which came through land ports. Previously, Bangladeshi exporters could send high-end garments overland to Indian cities for further shipment to Europe and the U.S. That is no longer possible due to the suspension of transshipment privileges.

"This is a blow to Bangladesh's garment export industry," said Anis Ahmed, head of supply chain firm MGH Group, which handles logistics for brands like Zara. "What used to take a week via Indian routes now takes up to eight weeks by sea." Bangladesh, the world’s second-largest apparel exporter after China, exported $38 billion worth of garments last year, with over $1 billion transported via Indian land and air routes. Ahmed sees this channel as promising. However, Bangladesh's limited air cargo capacity and small number of airports reduce the feasibility of direct air exports.

Many interpret India’s withdrawal of the transshipment facility as a response to recent remarks made by Dr. Muhammad Yunus during a visit to China. He referred to Bangladesh as the “sole maritime guardian” for India’s landlocked northeastern region and suggested it could become “an extension of China’s economy.” Political leaders from India's northeastern states criticized the comment as “provocative.” Dr. Yunus’ remarks highlighted India’s strategic vulnerability in the region, raising concerns in Delhi.

India’s Siliguri Corridor—a narrow 20-kilometer strip connecting its northeastern states to the mainland—is surrounded by Nepal and Bangladesh and lies close to Tibet’s Chumbi Valley. Following a history of border tensions and a 1962 military defeat to China, Indian defense planners worry that China could target the corridor in a future conflict to sever the northeast from the rest of India.

Bangladeshi analysts argue Dr. Yunus’ comments were misinterpreted and intended to promote regional connectivity. Meanwhile, during his China visit, Bangladesh welcomed Beijing's interest in investing $1 billion in a project on the Teesta River in northern Bangladesh. Indian analysts have warned that Chinese involvement in this project—located near the strategic Siliguri Corridor—could further alarm Delhi.

The BBC report notes that bilateral tensions have led to mounting concerns. Since former Prime Minister Sheikh Hasina was ousted amid protests on August 5 of last year, relations between the two countries have soured. Hasina is currently in exile in India. Nobel laureate Muhammad Yunus is heading an interim government in Bangladesh. Dhaka has been demanding Hasina’s extradition over charges including crimes against humanity, money laundering, and corruption. Delhi has not officially responded to this request. Additionally, India has often criticized Bangladesh over attacks on its Hindu minority. Recently, India described the alleged killing of a Hindu community leader as part of a “pattern of systemic repression” under the interim government. However, Muslim-majority Bangladesh denies targeting minorities and says such incidents are either politically motivated or regular crimes. Hindus make up less than 10% of Bangladesh’s 170 million population.

Frustration is also growing in Bangladesh over India’s stringent visa policies. Since Hasina's ouster, Indian visa approvals have plummeted. Previously, around two million Bangladeshis traveled to India annually for tourism, business, education, and healthcare. According to local media, daily visa issuance has dropped by over 80% in recent months. Hasina's presence in India and the demand for her extradition remains a key point of contention. Former Indian foreign secretary Shyam Saran said, “They must understand there is no way we can hand over Sheikh Hasina. We know what will happen to her if she is handed over. I don’t think the Indian public would support it.”

Amid growing tensions, India’s garment manufacturers’ association has called for a ban on Bangladeshi apparel imports via land routes. In response, Debapriya Bhattacharya, a senior economist at Dhaka’s Centre for Policy Dialogue, said India should reconsider other transit and transshipment benefits granted by the Hasina government for northeastern states. India uses Bangladesh’s ports, roads, and waterways to transport goods to its northeastern region, saving distance, time, and cost. However, officials note that the transit volume hasn’t reached expected levels.

Meanwhile, deepening Bangladesh-Pakistan ties are adding to the strain in India-Bangladesh relations. Bangladesh was formerly East Pakistan and fought for independence with India’s support in 1971. During her 15 years in power, Sheikh Hasina had distanced the country from Pakistan. But last month, Pakistan’s foreign secretary Amna Baloch visited Dhaka—the highest-level visit in 15 years. A planned visit by Pakistani Deputy Prime Minister Ishaq Dar was postponed due to a militant attack in Indian-administered Kashmir that heightened India-Pakistan tensions.

India’s former diplomat Shyam Saran commented that while he doesn’t believe Bangladesh’s outreach to Pakistan is a cause for concern, “if there's any indication that it's intended to complicate matters for India, then that would definitely be worrying.”

Intensifying official reactions on both sides are also influencing public sentiment. Indian media have been accused of exaggerating attacks on minorities and Islamist threats. Meanwhile, anti-India sentiment is reportedly rising in Bangladesh. Analysts warn that the long-standing people-to-people ties between the nations appear to be weakening. Without calm and restraint from both sides, their actions could seriously damage trade and economic relations.