Introduction
India and Bangladesh, historically intertwined by geography, culture, and trade, are facing a pivotal moment in their economic relationship. Recent trade restrictions imposed by India on Bangladeshi goods, particularly ready-made garments (RMG), signal escalating tensions that threaten to reshape South Asia’s economic landscape. Effective May 17, 2025, India has limited imports of Bangladeshi garments to only two seaports—Kolkata and Nhava Sheva—banning their entry through land ports, which previously facilitated 93% of the $618 million garment trade. This move, a response to Bangladesh’s own restrictions on Indian exports like yarn and rice, coincides with Bangladesh’s growing alignment with China, marked by $2.1 billion in new investments. As Bangladesh pivots toward Beijing, what does this mean for India’s influence in South Asia and the competitiveness of its textile sector? This article explores the economic and geopolitical implications of these developments, delving into the impact on Bangladesh’s garment industry, India’s manufacturing ambitions, and the broader regional power dynamics.
India’s Import Restrictions: A Strategic Retaliation
India’s decision to restrict Bangladeshi garment imports stems from a mix of economic protectionism and geopolitical posturing. The Directorate General of Foreign Trade (DGFT) issued a notification on May 17, 2025, prohibiting the import of RMG, processed foods, plastics, and other goods through land ports in Assam, Meghalaya, Tripura, Mizoram, and West Bengal’s Changrabandha and Fulbari checkpoints. Instead, these goods must now enter via the seaports of Kolkata and Nhava Sheva, significantly increasing logistics costs and delivery times for Bangladeshi exporters. This policy affects $770 million in bilateral trade, roughly 42% of India’s imports from Bangladesh, with garments alone valued at $618 million annually.
The restrictions are widely seen as a retaliatory measure following Bangladesh’s actions in April 2025, when it halted Indian yarn and rice exports through land ports and imposed stringent inspections on Indian goods. Bangladesh’s curbs, driven by its textile mills’ demands to protect domestic interests, disrupted India’s $2.39 billion yarn exports, which constitute 20% of its total exports to Bangladesh. Indian officials argue that Dhaka’s policies, including high transit fees and limited market access for India’s northeastern states, created an uneven playing field. “Bangladesh cannot cherry-pick terms of bilateral engagement solely to benefit itself,” a government official stated, emphasizing India’s push for reciprocal trade practices.
The Apparel Export Promotion Council (AEPC) in India has hailed the restrictions as a step toward bolstering domestic textile production. Mithileshwar Thakur, AEPC Secretary General, noted that 76% of Bangladeshi garment imports previously entered through the Petrapole land port, and rerouting them to seaports could reduce their competitiveness due to higher costs and delays. Indian textile hubs like Tiruppur stand to gain, with estimates suggesting a ₹1,000 crore ($120 million) business opportunity for local manufacturers as they fill the gap left by Bangladeshi imports.
Bangladesh’s Garment Industry: A Sector Under Pressure
Bangladesh’s ready-made garment sector, the backbone of its economy, is the world’s second-largest after China, exporting $38.48 billion in 2024. The industry employs over 4 million workers, primarily women, and accounts for 80% of the country’s export revenue. India, a key market, imported $618 million in garments in FY2024-25, with 93% arriving via cost-effective land routes. The new Indian restrictions threaten to disrupt this trade, forcing exporters to rely on slower, costlier sea routes.
The Bangladesh Garment Manufacturers and Exporters Association (BGMEA) has voiced alarm over the policy’s impact. BGMEA Administrator Anwar Hossain warned that rerouting shipments through Kolkata and Nhava Sheva could increase shipping times by weeks and raise logistics costs by 10–15%, potentially eroding Bangladesh’s price advantage. For example, the PRAN-RFL Group, a major exporter of processed foods, faces delays in its $50 million trade with India’s Northeast, where two-thirds of its shipments are destined. Stranded trucks at the Benapole border highlight the immediate logistical challenges, with 36 vehicles awaiting clearance as of May 2025.
The timing is particularly critical as Bangladesh prepares to graduate from Least Developed Country (LDC) status in November 2026, losing duty-free access to markets like the EU. This transition, combined with India’s restrictions, could exacerbate economic pressures. The Global Trade Research Initiative (GTRI) estimates that the curbs will affect 42% of Bangladesh’s exports to India, potentially leading to market share losses to competitors like Vietnam. Rising costs may also fuel inflation in Bangladesh, particularly for staples like onions, which have seen price spikes due to disrupted Indian supplies.
Bangladesh’s Pivot to China: A Geopolitical Shift
The trade tensions come against the backdrop of Bangladesh’s strategic realignment toward China, driven by both economic necessity and political shifts. The fall of Sheikh Hasina’s pro-India government in mid-2024 and the rise of an interim administration under Nobel laureate Muhammad Yunus have accelerated this pivot. During a March 2025 visit to Beijing, Yunus secured $2.1 billion in Chinese investments, including infrastructure projects like the Teesta River development, a sensitive issue for India due to its implications for water security in the Northeast.
Yunus’s remarks during the visit, describing India’s northeastern states as “landlocked” and dependent on Bangladesh for ocean access, sparked outrage in New Delhi. Indian officials viewed the statement as undermining the region’s connectivity and signaling Bangladesh’s intent to leverage its strategic position. China, already Bangladesh’s top military supplier and infrastructure partner, is capitalizing on this shift. Between 2016 and 2020, over 70% of Bangladesh’s major arms purchases came from China, and Beijing’s growing presence in ports, roads, and energy projects poses a direct challenge to India’s influence in South Asia.
Bangladesh’s economic pivot is also evident in its trade policies. Dhaka has begun favoring imports from China, Turkey, and even Pakistan, reducing reliance on Indian goods. This realignment risks weakening India’s position as Bangladesh’s largest trading partner, with bilateral trade valued at $12.9 billion in FY2023-24. India’s exports to Bangladesh, at $11.07 billion, far outweigh its $1.85 billion in imports, but the growing trade imbalance and Dhaka’s restrictions on Indian yarn and rice threaten this dynamic.
India’s Textile Sector: Opportunity Amid Challenges
India’s textile industry, a global player with $16–18 billion in annual exports, sees the restrictions as a chance to strengthen its competitiveness. The sector, which contributes 4–5% to global textile trade, has long faced pressure from Bangladesh’s cost advantage, bolstered by duty-free Chinese fabric imports and export subsidies. The Confederation of Indian Textile Industry (CITI) estimates that rerouting Bangladeshi garments will create a ₹1,000–2,000 crore opportunity for Indian manufacturers, particularly in categories like t-shirts and denim, where domestic production can meet demand.
However, challenges remain. India’s textile sector struggles with high input costs, reliance on imported machinery, and inefficiencies in power and logistics infrastructure. While the Production Linked Incentive (PLI) scheme and free trade agreements (FTAs) with the UK and potentially the EU and US are boosting exports, experts warn that structural issues must be addressed to fully capitalize on the opportunity. Rakesh Mehra, CITI Chairman, noted that short-term supply disruptions could lead to a 2–3% price increase in certain garment categories, requiring Indian manufacturers to scale up quickly.
The restrictions also align with India’s broader “Atmanirbhar Bharat” (Self-Reliant India) initiative, which aims to reduce import dependence and promote domestic industries. By curbing Bangladeshi imports, India hopes to attract labor-intensive jobs to textile hubs like Tiruppur, Surat, and Ludhiana, potentially creating thousands of jobs. Yet, the move risks alienating consumers in India’s Northeast, where Bangladeshi goods have historically been a cost-effective option.
Regional Implications: India’s Waning Influence?
The trade spat reflects broader geopolitical shifts in South Asia. India’s restrictions, coupled with the withdrawal of Bangladesh’s transshipment facility on April 9, 2025, signal a hardening stance. The transshipment facility, granted in 2020, allowed Bangladesh to route exports to the Middle East and Europe via Indian ports and airports. Its abrupt termination, following Yunus’s China visit, underscores India’s willingness to use trade as leverage.
Bangladesh’s deepening ties with China could reshape regional dynamics. The $2.1 billion investment, alongside China’s dominance in Bangladesh’s infrastructure and defense sectors, challenges India’s traditional role as South Asia’s economic anchor. Posts on X reflect public sentiment, with some Indian users framing the restrictions as a “diplomatic blow” to Dhaka’s alignment with Beijing. However, others warn that India risks losing influence if Bangladesh diversifies its trade partnerships further, potentially via hubs like the Maldives.
For Bangladesh, the economic fallout could be severe. The garment sector’s reliance on Indian markets and supply chains, particularly for yarn, makes it vulnerable to prolonged disruptions. Conversely, India’s Northeast, historically dependent on Bangladeshi goods, may face short-term supply shortages unless domestic production ramps up. The GTRI’s Ajay Srivastava notes that while India’s restrictions protect local industry, they could strain regional cooperation under frameworks like BIMSTEC, where both nations are key players.
Conclusion: A Delicate Balancing Act
The India-Bangladesh trade tensions highlight the complex interplay of economics and geopolitics in South Asia. India’s restrictions on Bangladeshi garment imports aim to protect its textile industry and assert strategic leverage, but they risk escalating costs for both nations. Bangladesh’s pivot to China, driven by economic imperatives and political shifts, challenges India’s regional influence, potentially reshaping trade and power dynamics. As both countries navigate this standoff, dialogue and reciprocity will be crucial to restoring cooperation. For India, capitalizing on the textile opportunity requires addressing structural inefficiencies, while Bangladesh must balance its China alignment with maintaining access to Indian markets. The coming months will test whether these neighbors can find common ground or if South Asia’s economic landscape will shift irrevocably toward new alignments.