How India-Bangladesh Cooperation And Connectivity Will Benefit From Japanese Support

The Northeast-Bangladesh economic corridor may add a significant geo-economic component to the regional geopolitics. 

The involvement of Japan in creating an industrial value-chain between Northeast India and Bangladesh and connecting the northeastern region (NER) to the Bay of Bengal, may well lead to significant results on the regional geopolitical front vis-à-vis China. 

Depending on the level of participation by the three countries, there is potential that the initiative may create a thriving and sustainable NER-Bangladesh economic corridor (let’s call it, NBEC), triggering mutual interest to attract private investments by harnessing natural advantages. 

“Viewing Bangladesh and other areas to the south as a single economic zone, we will promote the Bay of Bengal-Northeast India industrial value chain concept in cooperation with India and Bangladesh to foster the growth of the entire region,” Japanese Prime Minister Kishida Fumio said during his recent visit to Delhi. 

The proposal is part of the ongoing collaboration between India and Japan to build a ‘free and open Indo-Pacific (FOIP),’ and is an extension of the discussion that took place at the Japan-India Summit in 2022.

“The Prime Ministers reaffirmed the significance of collaborative projects ... in the Indo-Pacific region. They acknowledged the progress in ongoing projects in Bangladesh... They appreciated the importance of their continued collaboration through the Act East Forum (AEF) for the sustainable economic development of India’s North Eastern Region and for enhancing the Region’s connectivity with Southeast Asia,” the 2022 the joint statement said.

The Economic corridor

The initiative is a win-win for both countries. 

From less than $3.5 billion in 2010, India-Bangladesh trade reached nearly $16 billion in 2021. The trade logistics improved and more projects are under implementation.

But the regional value chain creation suffered. Lack of complementarity; traditional weaknesses of the border economies of West Bengal and the northeastern region (NER) in India; and, political-economic realities in Bangladesh, were three major reasons behind this failure. 

While West Bengal continues to be an economic backwater of India and is not showing much intent to tap into the opportunity, dramatic improvement in infrastructure and investment readiness of NER over the last decade has ushered new opportunities. 

Add to that the opening of Padma Bridge in a fast-growing Bangladesh- thereby ensuring easy connectivity between the northern and southern parts of the country - and, two major structural hurdles in creating a cross-border value chain being removed. 

That takes us to Bangladesh’s political-economic realities which are tilted in favour of China. Considering its goodwill in Bangladesh, Tokyo can act as a neutralizing factor and may create new opportunities for both economies. 

The far east Asian nation is building a deep-sea port at Matarbari in Cox’s Bazar, Bangladesh. The project, located close to Sabroom border in India’s Tripura, is expected to be completed in 2026.

A deep-sea port is costly. Since eastern India has multiple such facilities, access to NER may improve the viability of Matarbari. Similarly, a full-fledged port access will improve northeast India’s attractiveness to the investor community. 

In 2018, Bangladesh granted NER access to Chattogram port but only for the movement of goods to the rest of India. The port is in the same area as Matarbari and is barely 80 km from the Sabroom border in Tripura. 

What makes the Japanese proposal great is that India and Bangladesh are already building necessary transport infrastructure connecting Tripura and NER to Chattogram port. 

The Indian side of the project – including a state-of-the-art cargo and passenger terminal, linked by both rail and road at Sabroom – is in advanced stage of completion and will be ready in 2023. Related infrastructure is under construction in Bangladesh but at a delayed pace. 

Considering dramatic improvement in rail and highway connectivity between NER and the rest of India over the last decade, the restricted access to Chattogram port barely justified the huge investments in cross-country connectivity. 

Huge opportunity 

The Northeast has changed dramatically over the last nine years. It will change more. Huge investment in infrastructure and energy sectors is converting it into a cost-competitive, modern economy. 

The region now has access to low-cost transport options for both intra and inter-region movement of goods. Guwahati emerged as the regional logistics hub, thereby removing the dependence of far-flung states like Tripura on Kolkata. 

From the electricity deficit, NER will be electricity-surplus by June this year as 2000MW Subansiri (Lower) project will start coming into operation in phases. Over the next few years, it will be a hydroelectricity generation hub. 

Completion of the Paradip (Odisha)-Numaligarh (Assam) crude pipeline, operationalisation of nine million tonne per annum (mtpa) Numaligarh Refinery (NRL) and, implementation of the sprawling Indradhanush Gas Grid connecting every state in NER, will open a vista of opportunities by 2024. 

First, NER will have a huge exportable surplus of petro-products including diesel and cooking gas (LPG), which are imported by the neighbouring economies. Second, the refiners in landlocked Northeast India will surely look for a market in close proximity. 

The case for the regional value chain will be stronger over the next four-five years, as a substantial part of the 15 mtpa refining capacity in NER will be converted into petrochemicals. 

Ideally, it should usher investment opportunities in downstream units in the neighbourhood. 

A beginning was made by the recently inaugurated India-Bangladesh diesel pipeline, which may replace one-fifth of Dhaka’s fuel import through the sea route and will meet the entire fuel requirement of northern Bangladesh.

Pipeline transportation will remove an average 30-day time lag from the middle-East to the consumption point in Bangladesh, the related capital block and, the associated risks from foreign exchange volatility. 

Geoeconomics and geostrategy

India and Japan established the Act East Forum in 2017. Since then the two countries are in dialogue for sustainable growth of NER and connectivity in the region. 

Delhi and Tokyo have also been in dialogue on potential connectivity projects between NER and Southeast Asia through Myanmar. Successful implementation of NBEC will, therefore, be important to showcase the benefits of this collaboration.  

The ultimate gainer will be regional peace and security, which has been the cornerstone of the India-Japan relationship over the last decade. 

A lot has been written on “why Japan needs India as a security provider” vis-à-vis rising military threats from China. The first three pages of the seven-page joint statement, issued last year were dedicated to strategic issues.

Though there is no direct mention of China, highlighting the need to ensure a ‘code of conduct’ in the South China Sea, the need for a “rule-based order” that respects the sovereignty and territorial integrity and, protection against “attempt to unilaterally change status quo,” leaves very little to the imagination. 

Japan and South Korea have already advised their industry to relocate from China. Also as part of QUAD (Quadrilateral Security Dialogue), there is an active discussion to secure the supply chain in critical areas. 

The collaboration, therefore, might prove a unique opportunity for both Northeast India and Bangladesh to attract a part of the relocated supply chain.