October 8, 2005EconomyForeign Affairs

Leaving Bangladesh worse off

Cocking a snook at India at every given opportunity may play to certain political constituencies in Bangladesh. But very often it works against the country’s broader interests.

This is an archived blog post from The Acorn.

Tata Bangladesh!

Last year, India’s venerable Tata group created waves when it announced that it was considering investing over US$2.5 billion in Bangladesh. If Tata goes ahead with its plans, its investment will exceed the sum total of all foreign direct investment Bangladesh has received since independence in 1971. The Tata group estimates that its steel, power and fertilizer plants alone will create more than 6500 direct jobs. Moreover, Tata’s investment in gas processing plants will enable Bangladesh to move up the value chain, from just selling raw material to selling finished goods. With such a large investment knocking on its doors, one would be forgiven for expecting that the government of Bangladesh would expedite the process of getting the projects off the ground. But almost exactly a year after it made that announcement, four rounds of negotiations later, the Tata group has warned that it may be forced to reconsider its decision.

In principle, the Bangladeshi government cannot be faulted for its chest-thumping statements to the effect that the Indian company will not get any special treatment. But if the Tatas have been insisting on long-term guarantees from the Bangladeshi government, it is because that they are risking an unprecedented sum of money in a country with a chronic political unstability. The argument that Bangladesh is likely to lose tax and other revenues must be balanced against the increase in employment, investor confidence and economic growth the foreign investment will inevitably create. But it is the Khaleda Zia government’s reflexive antagonism towards India that is behind its unhelpful negotiating positions. Demonstrating that it is hauling a mighty Indian company through the coals may boost certain egos in Dhaka, but they dent international confidence in a country that sorely needs investment and aid.

A push too hard

And then there is that gas pipeline business. The Bangladeshi government stood to gain at least US$125 million every year if it allowed a pipeline that connected Myanmar to India to pass through its territory. While it is reasonable to expect that Bangladesh would use this opportunity to extract concessions from India — particularly those relating to trade and transit — that India is on the verge of abandoning the project, in favour of a more expensive direct route suggests that the Bangladeshi government miscalculated (via Secular-Right). It may have helped if bilateral relations between the two countries were cordial and co-operative — but with the Khaleda Zia government pursuing a resolutely antagonistic line, justifying a strategy that takes Bangladesh out of the equation becomes an altogether straightforward matter.

Indian public opinion currently views Bangladesh through the prism of illegal immigration, border clashes and terrorism. It didn’t help when the Bangladeshi government did nothing to smoothen ruffled feathers when one of its senior security officials alleged Indian involvement in the recent bomb blasts across Bangladesh. It is unlikely that tears will be shed in India if the Tatas were to abandon the Bangladesh project or if India and Myanmar were to build a direct gas pipeline. But what a pity that is for Bangladesh.

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