How does the Indian slowdown affect Bangladesh?

Posted in macro, trade by jrahman on January 17, 2012

Indian economy may be in a bit of rough spot.  After a spate of bad news, the rupee slumped against the dollar in November.  Then the government officially acknowledged an economic slowdown, while making a case that the fundamentals remain intact.

What does this slowdown mean for Bangladesh?

Not much, directly, as far as the production side of the economy is concerned.  After all, as Bangladeshis never tire of pointing out, Indians don’t buy Bangladesh stuff.  With about 2% of its export going to India, any slowdown there isn’t likely to matter much for Bangladeshi producers.

But there might be good news for the households.  Food prices in India are on the wane.  That’s likely to affect prices in Bangladesh.  Further, as the rupee falls against taka, inflationary pressures should ease.  In fact, rupee had already fallen by over 10 paisa against taka between July and November.  This was accompanied by food price inflation in Bangladesh easing to 10.4% in the year to December, compared with 13.4% in the year to July.  Rice price isn’t likely to fall to 10 taka a kg, but if the rupee falls further, there will be some respite on the prices front (assuming, of course, all else equal — which might not be the case thanks to Messrs Muhith and Ataur Rahman).

There is, however, another channel through which Bangladesh might be affected.  What if the slowdown proves sharper and more prolonged than currently believed?  What if India has a hard landing?  There is no statistics, official or otherwise, about the undocumented Bangladeshis working in India.  But there is no question that if the Indian economy seriously falters, it will have an impact on these folks.  Perhaps the result will be a return of the monga?

6 Responses

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  1. Diganta said, on January 20, 2012 at 3:58 pm

    Bangladesh needs to seriously start diversification of its imports …

    • jrahman said, on January 24, 2012 at 6:38 pm

      Interesting, but not sure if I agree. As a matter of theory, diversification of imports doesn’t make sense. You buy from whoever gives you the best deal (not just monetary price, but also incorporating various non-monetary factors such as guaranteed supply). As a matter of empirics, Bangladesh buys food stuff from India, consumer goods (durable and otherwise) from China and East Asia, oil from the Middle East, and capital goods from developed countries. Seems pretty diverse to me.

      • Diganta said, on January 31, 2012 at 5:31 am

        If Bangladesh already has diversed its food basken then the price pressure would be eased with increase in supply from other sources. However, a global slowdown has a different effect …

      • jrahman said, on February 4, 2012 at 11:08 am

        Think of it not in terms of ‘India’ and ‘Bangladesh’, but in terms of a large number of consumers who happen to be Bangladeshi and a large number of producers/distributors/wholesalers/retailers who may or may not be Bangladeshi / Indian / some other nationality. Conceptualised that way, the outcome produced by a free market will be, in general, the best possible one. And when we have problems, it’s because of government intervention.

        Let me explain with the example of cows. There is no ‘Cow Seller India Inc’ holding the ‘Cow Buyers Bangladesh Ltd’ as a captive market. There are lakhs of Indian cow owners who wouldn’t mind selling their animals, and there are similarly large number of butchers etc, and there are lakhs of beef eaters in Bangladesh. Let the market operate, and you don’t have a ‘diversification’ problem. Let the market operate, and you don’t have a ‘cow smuggling’ problem in the border, and you don’t have a murderous BSF problem. Ah, but cow has a special place in Hindu culture etc. Sure. But that doesn’t stop India from exporting $800m worth beef to Vietnam. By way of comparison, cow smuggling to Bangladesh is worth $500m. I am not sure Bangladeshis diversifying into Australian cows is the right idea here. A much simpler and saner approach would be to allow cross-border trade in cow.

        For more such heterodox ideas (not following the scripts of Deshi political formations), see this:

  2. সাতকাহন « Mukti said, on March 16, 2012 at 10:05 am

    […] Troubles in India.  (My take on the impact on Bangladesh remains […]

  3. সাতকাহন « Mukti said, on March 23, 2012 at 6:47 am

    […] – More on the Indian stagnation.  (How long before my take on the impact on Bangladesh changes?) […]

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