The political crisis in Bangladesh is likely to have a moderate impact on the Indian economy, particularly in specific industry segments and companies with significant exposure to the Bangladeshi market. However, the overall effect on India’s trade and economy is expected to be limited.
Impact on Trade and Economy
- India’s exports to Bangladesh account for only 2.5% of its total merchandise exports. While Bangladesh is an important trade partner, the severe political crisis there will have a very limited impact on India’s overall trade volumes.
- Specific industry segments where exports to Bangladesh constitute a large share, such as cotton yarn, may witness a material impact in the near term. However, this can also present an opportunity for Indian RMG players who had lost export markets earlier to Bangladesh.
- India’s diversified export portfolio means that any disruptions in trade with Bangladesh are unlikely to significantly affect its overall trade position for the fiscal year.
Impact on FMCG Companies
- Several Indian FMCG companies have exposure to the Bangladesh market, such as Marico, Godrej Consumer Products, Emami, Dabur, Britannia, and Asian Paints. However, their exposure is not singularly significant to their overall operations.
- Marico, which earns 12% of its revenue from Bangladesh, has seen its share price close nearly 6% lower, highlighting the company’s significant exposure to the Bangladeshi market.
- For other FMCG companies, the impact of the Bangladesh turmoil will be evident in their earnings in the coming quarters.
Impact on Manufacturing and Infrastructure Companies
- Indian manufacturing and infrastructure companies having business or project operations or supply linkages in Bangladesh are likely to witness some disruption and uncertainty in the near term.
- The current scenario may lead to deferment or slowdown of fresh investments by Indian companies in Bangladesh pending the establishment of a stable government.
Impact on Proposed FTA and Connectivity Projects
- The proposed FTA with Bangladesh will likely be put on the backburner under the current circumstances.
- Disruptions in the Chilahati-Haldibari rail link and the Maitree Express passenger train, both inaugurated in November 2023, could hinder India’s access to its Northeast region and jeopardize existing bus routes and agreements for Chittagong and Mongla ports.
In conclusion, while the Bangladesh crisis may have a moderate impact on specific industries and companies, the overall effect on India’s trade and economy is expected to be limited. However, the situation underscores the importance of stable political environments for sustaining economic growth and international trade relations.
