Exports to Bangladesh slip 28% in Aug; Crisil flags risk to export

Last Updated19/09/2024

Trade data showed that cotton exports, which is India’s primary export commodity to Bangladesh, slipped nearly 10 per cent to 1 billion in August this year compared to 1.11 billion August 2023.

India's exports to Bangladesh dropped by 28% in August 2024, falling from $943 million in August 2023 to $681 million this year, as Bangladesh faces protests, violence, and an exacerbated foreign exchange crisis.
The crisis in Bangladesh is impacting several sectors, with cotton exports, a major component of India’s trade with Bangladesh, declining by 10% year-on-year.

Cotton Exports: India's primary export to Bangladesh, cotton, fell to $1 billion in August 2024, down from $1.11 billion in August 2023.
The protests in Bangladesh have led to a slowdown in textile and apparel orders, which is adversely affecting the Indian textile industry, as Bangladesh is a major buyer of raw materials from India.
Spillover Effect on Indian Industry: The decline in textile orders from Bangladesh is starting to affect the Indian cotton and textile sectors, which rely on Bangladesh for raw material sales. According to Crisil, the prolonged disruption could impact the revenue profiles of certain export-oriented units that depend on Bangladesh as a demand center or production hub.

Footwear, FMCG, Soft Luggage: Companies operating in these sectors could face a moderate impact due to operational challenges in their Bangladesh-based manufacturing facilities. These facilities faced initial disruptions due to the crisis but have since resumed operations, although full production and supply chain stability remain critical.
Power and Engineering Companies: Engineering, procurement, and construction companies involved in power projects in Bangladesh are witnessing delays as much of their workforce has been recalled to India. This could lead to lower revenue bookings for this fiscal year.
Ship Breaking, Jute, and Readymade Garments (RMG): These sectors are seeing an increase in sales inquiries from export markets such as the US and Europe, benefiting from the current situation.

Forex and Currency Depreciation: The Bangladeshi taka has depreciated against the Indian rupee and other major currencies, creating additional forex-related challenges. This has raised concerns about the financial health of Bangladesh and its ability to settle international trade debts.
Delayed Payments: Indian companies supplying electricity to Bangladesh could face delayed payments, and the broader risk of debtor defaults is rising due to Bangladesh’s economic struggles. Many transactions between India and Bangladesh are carried out through letters of credit (LCs), which could be triggered in case of non-payment, adding pressure on Bangladesh’s banking sector.

Revenue Impact: While sectors like cotton yarn and FMCG could see revenue impacts due to the disruptions, operating profit margins may not be severely affected, as margins in cotton yarn have already been modest.
Export Share: Despite the current challenges, India's trade with Bangladesh remains relatively small, accounting for only 2.5% of India’s total exports and 0.3% of its imports. Bangladesh’s crisis is unlikely to have a significant short-term impact on India's broader economic landscape, although key sectors may feel pressure.
The situation continues to evolve, with further disruptions in Bangladesh potentially amplifying challenges for Indian exporters and companies with operations in the region.