Trade on road to recovery but Indian firms tread cautiously

Truck movements across the India-Bangladesh border are on the rise, with increasing rentals signalling a trade recovery between the two South Asian nations.

Yet, geopolitical tension looms large, with Bangladesh now under an interim government for nearly two months.

Indian businesses are seeing improvements in their operations on a month-on-month basis, with the flow of goods to and from Bangladesh slowly normalising.

Still, two primary concerns persist — payments from  Bangladesh and safety of Indian executives travelling there.

Resuming the relative stability experienced under the previous Sheikh Hasina regime remains a work in progress.

Hasina, after weeks of violent protests by students and other groups that killed over 600 people, resigned as Bangladesh prime minister and fled to India on August 5.

Since then an interim government under Muhammad Yunus has been established.

Consider this: In mid-August, a South Indian businessman received an order for 20 containers of pulses from Bangladesh.

Despite a business relationship spanning 15 years, he hesitated to proceed, citing political uncertainty in India’s eastern neighbouring country as his main concern.

“Though exports are back to around 80 per cent, what exporters lack is confidence,” he said.

According to trade policy analyst S Chandrasekaran, exports are currently at 75-80 per cent of pre-crisis levels.

“Trucks are moving again, but it’s (trade is) not yet back to where it was,” he said.

For exporters, the key question remains: “Will I get my money?”

Bangladesh’s foreign exchange reserves are under pressure, which could delay payments to Indian companies for goods and services, flagged Anuj Sethi, senior director at CRISIL Ratings.

“This could extend the working capital cycle for Indian corporates,” he explained.

One glaring example is Adani Power, with dues from Bangladesh now nearing $900 million.

“Payments have been slow, but the dues for power supplied are steadily increasing,” according to a person in the know.

Adani Power, which has been supplying electricity to Bangladesh from a 1,600 Mw thermal plant in Godda, Jharkhand, since July 2023, acknowledged the challenge.

“We continue to supply power to Bangladesh despite mounting dues, which are of significant concern and are rendering plant operations unsustainable,” replied an Adani Power spokesperson to an e-mailed query by Business Standard.

“We are in constant dialogue with senior officials of the BPDB (Bangladesh Power Development Board) and the government of Bangladesh, who have assured us that our dues will be cleared soon.

"We have maintained the power supply based on their assurances.”

Indian companies face a complex environment.

The Indian government allowing Hasina to stay in the country hasn't been well-received in Bangladesh, with one Indian company noting that industrial relations, particularly with labour, have been affected.

This week, India’s High Commissioner to Bangladesh, Pranay Verma, met Bangladesh’s Foreign Affairs Adviser Touhid Hossain to discuss “cooperation in the areas of trade, projects, and people-to-people contacts”.

India’s automobile exports to Bangladesh, a key sector, have also been hit. In 2023-24, exports totalled $175 million, down from $223.68 million the previous year. TVS Motor CEO K N Radhakrishnan, in an analyst call, acknowledged the challenges but expressed optimism.

“Although it’s a small market in terms of overall volume, we believe things will stabilise in a couple of months,” he said.

TVS Auto Bangladesh sold around 60,596 units last year.

Indian companies dominate the two-wheeler market in Bangladesh, with Bajaj Auto, Hero MotoCorp, and TVS Motor collectively holding over 50 per cent of the market.

However, the industry expects a 15-20 per cent decline in sales compared to the previous year.

Tata Motors, Eicher Motors, Ashok Leyland export trucks and buses to that country.

Tata Motors maintains a presence through distributors such as the Nitol Niloy Group.

Commercial vehicle exports, however, remain low since the Covid pandemic.

Maruti Suzuki, on the other hand, said the crisis in Bangladesh does not impact its sales a lot.

“Our car exports are well diversified, across about a hundred countries.

"A good chunk goes to distant countries like those in Latin America, so we are hardly impacted by the Bangladesh issue,” a company spokesperson pointed out.

Also there have been more positive developments of late. Rakesh Sharma, executive director at Bajaj Auto, the largest exporter of two- and
three-wheelers to Bangladesh, told Business Standard: “September was a growth month.”

Jayanta Chakraborty, consultant for Bangladesh at Indofil Industries, which exports crop protection chemicals, said operations had normalised to about 90 per cent, with banking transactions and the opening of letters of credit easing.

Its bulk material is packaged at a factory 30 km from Dhaka and then marketed across the country.

KEC International, a major player in the engineering, procurement, and construction space, has resumed its operations in Bangladesh, after some disruptions.

The company’s projects, which include transmission and railway projects, are in various stages of execution.

Its team is diverse, comprising 30 Indian nationals and 50 Bangladeshi nationals.

All Indian staff had returned to India in early August, but some have since returned.

“We expect the normal pace of project execution to be achieved from October.

"We are in constant touch and dialogue with the clients and other governmental authorities,” said Vimal Kejriwal, managing director and CEO of KEC International.

Truck rentals are another indicator of the recovery.

The Shriram Mobility Bulletin reported an upward trend in the eastern region in August, with fleet utilisation at the India-Bangladesh border increasing to 60 per cent from 40 per cent in the previous month.

The resumption of trade has particularly boosted rentals on the Kolkata-Guwahati-Kolkata route, which saw a 3 per cent increase, while the Delhi-Kolkata-Delhi route recorded a 2.7 per cent rise. Higher fleet usage has driven the surge in truck rentals, explained YS Chakravarti, managing director and CEO of Shriram Finance, citing the reopening of the India-Bangladesh trade route.