Prime Minister Narendra Modi and Bangladesh PM Sheikh Hasina during a ceremonial reception for Bangladesh PM at Rashtrapati Bhawan, in New Delhi on Saturday.
| Photo Credit: Sushil Kumar Verma

India and Bangladesh on Saturday agreed to begin a dialogue on a comprehensive economic partnership agreement (CEPA) paving the way for broader economic ties between the two neighbouring economies.

In his welcome remarks delivered at the Hyderabad House, Prime Minister Narendra Modi said the two sides will intensify connectivity and energy collaboration, and announced that trade between the two countries is being conducted in the Indian currency.

“Between Akhaura and Agartala, the sixth India-Bangladesh cross-border rail link has been started. Cargo facility for India’s northeastern States has been started through the Khulna-Mongla Port. Mongla Port has been connected by rail for the first time. Both units of the 1,320 mega watt Maitree Thermal Power Plant have started generating electricity. Trade in Indian Rupee (INR) has started between the two countries,” Mr. Modi said.

Prime Minister Sheikh Hasina arrived here on Friday on a two-day visit, the first state visit by a foreign leader since Prime Minister Narendra Modi took charge for the third term on June 9. The two sides signed multiple MoUs covering maritime cooperation and economy, rail connectivity, oceanography, health and disaster management among others. Elaborating on the MoU on railway connectivity that was exchanged on Saturday, Foreign Secretary Vinay Mohan Kwatra said that apart from the six existing cross-border railway links between the two countries, the document focuses on “transit that they afford between different parts of India through the territory of Bangladesh.”

“The connectivity essentially strengthens a very large part of economic infrastructure within Bangladesh. It’s effectively a connectivity paradigm that benefits both the countries, both the societies, both the economies, very extensively,” said Mr. Kwatra explaining that “sub-regional transit that Bangladesh would get to Bhutan and Nepal would be further expanded and strengthened.” It is understood that India will attempt to run a train service in the near future that will connect north-eastern States like Tripura with West Bengal through the territory of Bangladesh.  

Welcoming the leader of Bangladesh, Mr. Modi announced that India will open an Assistant High Commission in Rangpur in the northern part of the country. Rangpur, which is strategically located between West Bengal and Assam, is also important as it is nurtured by the waters of the Teesta, which is a matter of protracted negotiation between India and Bangladesh. India’s Deputy High Commissioner sits in the High Commission in Dhaka and therefore the mission in Rangpur will be a subsidiary office, sources here said.

Team on Teesta

During the event in Hyderabad House, Mr. Modi announced that a technical team from India will soon visit Bangladesh to discuss “conservation and management of the Teesta river”. In the backdrop of stalled negotiations on the sharing of the waters of the Teesta, Bangladesh came up with the project to conserve Teesta and subsequently, the project drew interest from New Delhi. The project is also likely to feature in the agenda when Ms. Hasina visits China next month, as China too has displayed interest in the project regarding the cross-border river

Medical e-visas

Mr. Modi also announced that India will start issuing e-medical visas to deal with the surging demand for medical visas from Bangladesh. Bangladesh has been complaining about delays in getting visas that are often urgently required for individuals who seek medical treatment in Indian hospitals. The e-medical visas are aimed at dealing with that increase in demand.

Speaking after Mr. Modi, Prime Minister Hasina said she discussed “politics, security, trade, connectivity, sharing of water from common rivers, power and energy, regional and multilateral cooperations”. Foreign Secretary Kwatra said the two leaders discussed the Rohingya issue, which has remained on top of the agenda, since more than a million Rohingya refugees came to Chittagong after they were displaced by the Myanmar military from the crisis-torn Rakhine province.

The two sides also signed an MoU on launching small satellites.

Ms. Hasina described her visit as “incomparable” as this is her second visit to India within a span of 10 days. She had attended the swearing-in ceremony of Mr. Modi on June 9. She invited PM Modi to visit Bangladesh to witness the development projects that are currently under way in that country.

“While India’s total imports from the UAE fell 9.8% from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210%, from $3.5 billion to $10.7 billion,” GTRI report said.
| Photo Credit: Reuters

“India’s gold and silver imports from its free trade agreement (FTA) partner UAE have skyrocketed 210% to $10.7 billion in 2023-24 and there is a need to potentially revise the concessional customs duty rates under the pact to mitigate the arbitrage driving this surge,” a report said on June 17.

Economic think tank Global Trade Research Initiative (GTRI) said this sharp rise in gold and silver imports is primarily driven by import duty concessions granted by India to the UAE under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

India allows 7% tariffs or customs duty concessions on import of unlimited quantities of silver and a 1% concession on 160 metric tonnes of gold. CEPA was signed in February 2022 and implemented in May 2022.

Additionally, India facilitates gold and silver imports by allowing private firms to import from the UAE through the India International Bullion Exchange (IIBX) in Gift City. “Previously, only authorised agencies could handle such imports,” the report said.

“While India’s total imports from the UAE fell 9.8% from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210%, from $3.5 billion to $10.7 billion,” it said.

“Import of all remaining products fell 25%, from $49.7 billion in FY23 to %37.3 billion in FY24,” it said. GTRI Founder Ajay Srivastava said the current import of gold and silver from the UAE is unsustainable as the UAE does not mine gold or silver or add sufficient value to imports.

“High import duties in India on gold, silver, and jewellery at 15% are at the root of the problem. Consider lowering tariffs to 5 per cent. This will cut large-scale smuggling and other misuse,” Mr. Srivastava said.

Trade in gold, silver, and diamonds has been prone to misuse due to their low volume but high value and high import duties in India. “Low tariff imports of gold, silver only benefit few importers who keep all profits arising through tariff arbitrage and never pass it to consumers,” he said.

Mr. Srivastava suggested the government implement certain measures to help India balance its trade policies, protect domestic revenue, and ensure fair competition in the import of precious metals and jewellery. It suggested reassessing and potentially revising the concessional duty rates under CEPA to mitigate the arbitrage driving the surge in imports of gold and silver.

“At least, implement yearly import quotas (tariff rate quotas) for silver, similar to those for gold, to control the volume of imports and prevent revenue loss,” it said, adding that India should rigorously verify the claimed value addition by Dubai-based refiners in gold and silver imports to ensure compliance with CEPA rules of origin.

It also asked to tighten regulations around the India International Bullion Exchange (IIBX) at Gift City to control the volume and nature of precious metal imports and the exchange should not allow country-based exemptions.

As increased imports contribute to a higher current account deficit and since gold and silver act more like financial instruments than regular trade items, India should avoid including them in any FTA.

“India has granted tariff concessions for these items in many FTAs and under the DFTP (duty-free tariff preference) scheme, so a comprehensive review is needed.

India announced the scheme for LDCs (least developed countries) in 2008. Under this, India provides duty free/preferential market access on about 98.2% of India’s tariff lines (or product categories).

Further, the report stated that silver imports from the UAE increased multifold to $1.74 billion in 2023-24 from a meagre $29.2 million in 2022-23 due to India charging an 8% duty under the CEPA versus a 15% duty from other countries.

“The large 7% tariff arbitrage resulted in a loss of revenue for India of ₹1,010 crore in FY24. Revenue loss will increase as India has committed to make tariffs zero on unlimited quantities of silver from the UAE within next 8 years,” it added.

It said this trade is unusual because the UAE just imports large silver and gold bars, melt and convert these into silver grains and unwrought gold for exports. “A check with global refiners will show that value addition in such process is much less than 1% as opposed to 3% required under the FTA,” it said.

On gold bars, the report said India agreed to import 200 metric tonmes of gold annually from the UAE with a 1% tariff concession and due to this gold imports rose 147.6% from $3 billion in FY23 to $7.6 billion in FY24, causing India to lose ₹635 crore in revenue in FY24.

Similarly, India’s jewellery imports have increased 187.6% from $1.1 billion in FY23 to $3.3 billion in FY24, whereas these imports from the UAE have increased 290% from $347 million in FY23 to $1.35 billion in the last fiscal.