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A quiet storm is brewing along the borders of India and Bangladesh. It is not with troops or tanks, but with tariffs, transshipments, and tightened trade routes. Bangladesh, India's largest trade partner in South Asia, will no longer be allowed to use Indian land ports to export readymade garments. What first began as a policy recalibration has now transformed into a simmering trade war between the two countries. In this article, we are going to unpack the flashpoints, the fallout, and discuss how this trade war is going to impact Indian MSMEs.
Trade War: India & Bangladesh
The story begins in February when the association of the Bangladesh textile mill owners demanded that the Bangladeshi government stop the import of yarn from India. At the same time, the Bangladesh Trade and Tariff Commission approached the government asking for the same request.
Their concern was, the yarn imported from India was cheaper and was causing heavy financial losses to the local producers. Bangladesh, one of the biggest garment producers it requires imports of yarn from India. The Indian yarn, due to its cheaper price, it become extremely popular among Bangladeshi manufacturers, and hence it allegedly hit the sales of domestically produced yarn. According to the Bangladeshi authorities, many times Indian yarn is sold even at lower prices than those declared at the Customs House.
On March 2, 2025, the Bangladesh government committee completed the closure of three land ports of Chilahati Land Port in Nilphamari, Daulatganj Land Port in Chuadanga, and Tegamukh Land Port in Rangamati.
This unexpected shutdown has swiftly disrupted a key channel through which 30% of yarn exports to Bangladesh. Before the restriction, India was exporting over 100 million kilograms of yarn monthly, which dropped to 90 million kilograms.
In April, while Muhammad Yunus, the current interim government of Bangladesh, visited China and described India's Northeast seven sister states as 'landlocked' with "no ways to reach out to the ocean," positioning Dhaka as the "major guardian of the ocean."
Following his comments on April 9, 2025, the government revoked a critical transhipment facility granted to Bangladesh on June 29, 2020, that allowed Bangladesh cargo export to move to third countries such as Bhutan, Nepal, and Myanmar via Indian Land Customs Stations (LCSs), ports, and airports.
On May 19, 2025, India finally restricted Bangladeshi exports via its Land ports of Tripura, Assam, Meghalaya, and Mizoram. According to Indian estimates, Bangladesh exports 93% of its ready-made garments to India through the land ports.
Bangladesh-China Tradomance
Bangladesh enjoyed 97% of its goods with duty-free access to China's domestic market since June 2020, permitted by Chinese authorities. This is helping Bangladesh diversify its export base and surging its industry up in the value chain.
Reports of the Carnegie Endowment for International Peace highlight that Bangladesh is a country in South Asia where the largest number of infrastructure projects have been developed with Chinese help.
Bangladesh is China's second-largest buyer of military hardware globally. According to the 2020 report of Stockholm International Peace Research Institute, Chinese arms make up over 70% of Bangladesh's major arms purchases.
According to the head of GTRI, Ajay Srivastava, Yunus's visit to China in March 2025 yielded $2.1 billion in new investments and cooperation agreements.
India’s Strategic Move
According to the Indian Express report, India decided to halt imports of garments from Bangladesh as it is looking to attract labour-intensive jobs in the sector. The Indian textile sectormight see a push because of free trade agreements with the UK, which already give free access to the UK market for its garment exports, and India is looking for similar deals with the EU and the US.
Think tank Global Trade Research Initiative (GTRI) stated that the Indian textile firms protested for a long period because the competitive edge enjoyed by Bangladeshi exporters– these exporters receive duty-free Chinese fabric imports and export subsidies, which give them a 10-15% advantage in the Indian market.
Impact on India's MSMEs
As of today, India has restricted Bangladeshi imports worth $ 770 million, covering nearly 42% of its bilateral imports.
Textile stocks of companies like Kitex Garments, Siyaram Silk, and Raymond shot up today by up to 10% on the Bombay Stock Exchange (BSE).
GTRI founder, Ajay Srivastava, said, "The port restriction will help Indian MSMEs from the textiles sector."
Apparel Export Promotion Council (AEPC) Vice Chairman, A. Sakthival, said, " It is a good decision now taken by the Indian government. The domestic industries will benefit from this."
According to Srivastava, even if Dhaka moves closer to Beijing, India should not shut the door to talks. He continues, "As the bigger neighbour and regional power, India has a greater responsibility to lead with patience, keep communication open, and avoid using trade as a weapon. Rebuilding trust through diplomacy and economic cooperation is still possible.
Reference
Indian Express: How India–Bangladesh trade ties are fraying — and China gaining ground?
The Hindu: India curbs Bangladeshi exports via land ports
The Week Magazine: Trade war? Why Bangladesh blocked the import of yarn via land ports from India
The Daily Star: Govt body recommends closure of 3 land ports, suspension of one
Dhaka Tribune: Bangladesh loses Indian route for third-country exports
India Today: India stops trans-shipment for Bangladesh after Yunus calls Northeast 'landlocked'
The Economic Times: India's port restrictions on Bangladesh imports to help MSMEs: Experts
The Economic Times: Textile stocks rally up to 10% as Bangladesh port curbs likely to generate Rs 1k cr biz for domestic firms
https://economictimes.indiatimes.com/markets/stocks/news/textile-stocks-rally-up-to-10-as-bangladesh-port-curbs-likely-to-generate-rs-1k-cr-biz-for-domestic-firms/articleshow/121263966.cms
Glottis Limited: Impact of India-Bangladesh Land Port Closures on Yarn Exports
https://glottis.global/2025/04/30/impact-of-india-bangladesh-land-port-closures-on-yarn-exports/
foreign trade | Garments & textiles Garments & textiles