This is an archived blog post from The Acorn.
India’s Tata group has been seriously considering a massive investment in Bangladesh for some time. Shorn of all politics, Bangladesh and India are natural economic partners. The two-nation theory dealt a cruel blow to the integrated economy of Ganges delta, leaving for example, the jute producing regions in Bangladesh and the jute processing factories in India’s West Bengal state. Seen from a purely economic perspective, the case for free-trade between India and Bangladesh is not only sensible, it is urgent to boot.
Two billion US dollars will be invested in a power plant, a fertilizer factory and a steel unit. The 1 million tonne fertilizer unit and the 1,000 megawatt power plant will use natural gas as raw material, and the steel unit will also be gas-powered. Bangladesh has an abundance of gas reserves and simultaneously faces demand for power, fertilizers and steel, with no domestic iron ore required for the latter. If the proposal is eventually approved, this will be the largest foreign direct investment project in Bangladesh. Given the size of the project and its time frame, the Tata group understandably wants guaranteed gas supply. While Bangladesh has agreed in principle, tricky issues like price of delivery remain under negotiation.
The potential for Indo-Bangladesh trade has been enumerated ad nauseam and is about to result in a free trade agreement. However, implementation continues to be obstructed by insistence on rules of origin, local content and other procedural problems, including testing and certification procedures. But more importantly, the potential is even greater for cross-border investments, of which the Tata project is an instance. Bangladesh enjoys the status of a least developed country and in the foreseeable future, this ensures preferential duty access in third country markets. In addition to locational advantages, labour laws are also more flexible in Bangladesh. [Telegraph]
But the recent jolts to Bangladesh’s political stability may create roadblocks to Tata’s plans leaving the India-Bangladesh saga to continue to lurch between hope and despair.
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