Seamless transport connectivity can create significant economic gains for Bangladesh and India, World Bank says

Titled “Connecting to Thrive: Challenges and Opportunities of Transport Integration in Eastern South Asia,” the report analyzes the Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicles Agreement (MVA); com­pares it with international best practices; and identifies its strengths as well as gaps for seamless regional connectivity.

The report also discusses regional policy actions the countries can take to strengthen the MVA and proposes priorities for infrastructure investments that will help the countries maximize its benefits.

Today, bilateral trade accounts for only about 10 percent of Bangladesh’s trade and a mere 1 percent of India’s trade.

Whereas, in East Asian and Sub-Saharan African economies, intraregional trade accounts for 50 percent and 22 percent of total trade, respectively.

In fact, it is about 15–20 percent less expensive for a company in India to trade with a company in Brazil or Germany than with a company in Bangladesh, the report points out. High tariffs, para-tariffs, and nontariff barriers also serve as major trade barriers. Simple average tariffs in Bangladesh and India are more than twice the world average.

Previous analysis indicates that Bangladesh’s exports to India could increase by 182 percent and India’s exports to Bangladesh by 126 percent if the countries signed a free trade agreement.

This analysis found that improving transport connectivity between the two countries could increase exports even further, yielding a 297 percent increase in Bangladesh’s exports to India and a 172 percent increase in India’s exports to Bangladesh.

“Geographically, Bangladesh’s location makes it a strategic gateway to India, Nepal, Bhutan, and other East Asian countries. Bangladesh can also become an economic powerhouse by improving regional trade, transit and logistics networks,” said Mercy Tembon, World Bank Country Director for Bangladesh and Bhutan. “While trade between India and Bangladesh has increased substantially over the last decade, it is estimated to be $10 billion below its current potential. The World Bank is supporting the Government of Bangladesh to strengthen regional and trade transit through various investments in regional road and waterways corridors, priority land ports, and digital and automated systems for trade.”

Weak transport integration makes the border between Bangladesh and India thick. Crossing the India–Bangladesh border at Petrapole–Benapole, the most important border post between the two countries, takes several days. In contrast, the time to cross borders handling similar volumes of traffic in other regions of the world, including East Africa, is less than six hours, the report highlights.

“The eastern sub-region is poised to become an economic growth pole for South Asia. An important component of this development potential is for countries to invest in connectivity – rail, inland waterways, and roads,” said Junaid Ahmad, World Bank Country Director in India. “This is especially true as the region begins its economic recovery from the COVID-19 pandemic. Ultimately, connectivity offers the promise of long term sustainable and inclusive growth.”

At present, Indian trucks are not allowed to transit through Bangladesh. As a result, the northeast of India is particularly isolated with the rest of the country and connected only through the 27-km-wide Siliguri corridor, also called the “chicken’s neck”. This leads to long and costly routes. Goods from Agartala, for example, travel 1,600 kilometers through the Siliguri corridor to reach Kolkata Port instead of 450 kilometers through Bangladesh. If the border were open to Indian trucks, goods from Agartala would have to travel just 200 kilometers to the Chattogram Port in Bangladesh, and the transport costs to the port would be 80 percent lower, the report estimates.

According to the report, all districts in Bangladesh would benefit from integration, with the eastern districts enjoying larger gains in real income. States bordering Bangladesh such as Assam, Meghalaya, Mizoram, and Tripura in the northeast, and West Bengal on the west, and states further away from Bangladesh such as Uttar Pradesh and Maharashtra would also gain huge economic benefits from seamless connectivity. 

However, unleashing the full potential of integration in the region requires strengthening the agreement signed in 2015. Countries need to address a number of challenges such as infrastructure deficits, particularly in designated border posts, harmonization of regulations and customs procedures, the report says.

“The transport integration agreements in eastern South Asia represent a significant step toward the creation of a cross-border integrated transport market in the subregion, with the Motor Vehicles Agreement (MVA) being the cornerstone of that integration. The agreement can achieve full potential by adopting good practices; addressing gaps and inconsistencies in infrastructure and market failures in transport services; and adopting complementary policies that remove binding constraints caused by market imperfections,” said Matias Herrera Dappe, Senior Economist and Charles Kunaka, Lead Private Sector Specialist and authors of the report.

The report recommends key policy actions countries should take to strengthen the MVA. These include:

Harmonizing driver’s licensing and visa regimes
Establishing an efficient regional transit regime
Rationalizing and digitizing trade and transport documents
Liberalizing the selection of trade routes

The report also makes the following policy recommendations to improve regional connectivity:

Standardize infrastructure design
Expand the effective capacity of core transport and logistics infrastructure along regional corridors

Ensure competition in transport service markets

Deploy modern information technology infrastructure at land ports and seaports

Develop off-border custom clearance facilities in Bangladesh and India

The following complementary interventions would help spreading the benefits of regional transport integration to local communities, the report adds:

Connecting local markets to regional corridors
Removing logistics bottlenecks in export-oriented value chains
Improving women’s participation in export-oriented agricultural value chains at the macro, community, and household levels