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Foreign Policy

Published on: Dec. 26, 2022, 1:21 p.m.
Can India tackle the foreign policy challenge?
  • The principal Opposition party BNP has organised several protest rallies across the country to capitalise on the growing economic distress

By Rakesh Joshi. Executive Editor, Business India

Prime Minister Sheikh Hasina has dominated Bangladeshi politics for well over a decade now. Yet, now her position is getting wobbly, as the Bangladesh Nationalist Party (BNP), the principal Opposition party, has organised several protest rallies across the country to capitalise on the growing economic distress. It hopes to corner the ruling Awami League government and its leader in the run-up to the general election slated for next year. The protests were initially sparked by hikes in fuel prices and frequent, lengthy power cuts because of the fuel shortage, but has since taken a different turn.

The BNP has now charged the Sheikh Hasina-led government with violating human rights and gagging the media – a charge which is finding traction with western countries and human rights bodies. It is demanding the installation of a caretaker government, as it alleges that the Awami League dispensation is not capable of either managing the economy or allowing fair and free elections.  India, which has a lot at stake in the stability of Bangladesh, has so far chosen to watch the situation in silence, as has China intent on establishing a geopolitical grip on Dhaka.

Policy challenge

As elections loom large, the situation in Bangladesh presents a serious foreign policy challenge to India, which will fully unfold in 2023. What if the BNP comes to power? Is a Sri Lanka type of macro-economic breakdown possible? Some experts feel that the situation calls for a calibrated behind-the-scenes intervention by India. While Bangladesh continues to post impressive GDP growth numbers, its economy is facing pressure from several quarters, forcing it to reach out to the International Monetary Fund (IMF) for help. Bangladesh will receive assistance worth $4.5 billion (about Rs37,000 crore) from the IMF.

To receive IMF loan assistance, Bangladesh has to comply with several conditions and introduce reforms in the financial sector. A decade ago, Bangladesh had received an extended credit facility of $1 billion from the IMF in seven instalments. One of the conditions, on the contrary, was to enact Value Added Tax (VAT). The government of Bangladesh will now have to deal with several new conditions imposed by the IMF. This has become the subject of a lively debate.

Analysts are debating how far the IMF's reform proposals and conditions can provide a solution to Bangladesh's ongoing economic crisis. Some say that the reform proposals and conditions that the IMF is imposing to overcome the current crisis will be helpful in stopping various irregularities in the financial sector. Others feel that several of the reform proposals may intensify the crisis.

IMF prescription

What are the IMF’s reform proposals? On 26 October, a visiting IMF delegation held three separate meetings with Bangladesh’s Ministry of Finance, where the issue of reducing the subsidies given by the government in various sectors came up. According to local media reports, the IMF has asked for reforms in the management of gas, electricity and fertiliser subsidies.

This reform means reducing the subsidy. The organisation has sought a time-bound plan from the government in this regard. Apart from this, they sought to know the plans to divest the big government companies, which are kept running with subsidies, to the private sector.

The visiting team also sought to know the trends in the actual spending on education and health sectors from allocations to the social security sector. Besides, the IMF has asked to know about the government's plans to release the subsidies to loss-making state-owned enterprises in oil, electricity, fertiliser and gas sectors.

"The economy of Bangladesh is not in a position to negotiate on whatever terms the IMF sets,” assesses Mohammad Helal Uddin, professor, economics, Dhaka University & director (research), Centre on Integrated Rural Development for Asia & the Pacific (CIRDAP). “So, Bangladesh has to take a loan.”

  • Hasina: her position is getting wobbly?

“This bad state of the economy is because the debt and domestic resources were not used properly in the past,” he adds. “About 30 per cent more than the actual cost has been spent in various sectors, including on development projects.”

“Bangladesh's increasing foreign debt has not reached a critical point,” contends Salim Raihan, also professor in Dhaka University. “However, every year after 2026, Bangladesh will have to pay back the IMF debt with interest. Then there will be pressure. So, if the loan is not used properly, there will be a crisis.”

What went wrong?

The country had overtaken India in terms of per capita income in 2020, on the back of robust economic growth for the better part of the last two decades, especially since 2017. In fact, unlike many countries, including India, that saw their GDP contract in 2020, following the Covid-19 pandemic, the economy of Bangladesh had actually grown during this period. Its GDP grew by 3.4 per cent in 2020 and by 6.9 per cent in 2021. So, what went wrong after that?

The war in Ukraine has been an unsettling factor. Also, inflation has spiked to uncomfortable levels, as all kinds of commodities such as crude oil became costlier. The inflation rate in November was 8.85 per cent, as against 5.98 per cent in November 2021. The current account balance (the gap between the money coming into a country on account of earnings through the export of goods and services and the money going out of the country via the import of goods and services) has gone deep into a deficit.

Bangladesh has typically been hugely dependent on its export earnings but, as the Western economies slow down and their consumers put off their demand for a later date, the country suffers.

The local currency, ‘taka’, has weakened partly under the pressure of the surge in dollar and partly on account of the worsening current account deficit. A weaker taka further aggravated the inflationary spiral, because all imports become costlier still. Finally, the weakness in the external front has resulted in Bangladesh’s foreign exchange reserves getting depleted to just $33,790 million last fortnight – a fall of more than one-fourth of its total valuation compared to last year.

Distressing politics

Equally distressing is the political situation. Of late, Hasina has been repeatedly accused by human rights groups of high-handedness against her critics, political opponents and journalists. Laws like the 2018 Digital Security Act, which the UN called ‘draconian’, have helped her quell even the minutest of dissents. Over the past two years, more than 2,000 people have been detained under it. Indeed, after the Dhaka protests, among those detained were two senior Opposition leaders Mirza Fakhrul Islam Alamgir and Mirza Abbas.

The BNP’s political strategy is to catalyse the people’s anger and overthrow Hasina. But even if Hasina steps down, a free and fair election is held and BNP assumes power in the 2023 elections, this is unlikely to change the status quo of the country, because the rot lies in the economy. BNP might not be able to appease the people alienated or offer a timely solution to the financial crisis. Some political observers believe that, if the country surges towards a Sri Lanka-like situation, it would be the last thing India needs in the region.

  • Among a string of issues that are disenchanting Bangladeshi voters – a huge chunk of them peasants – is the longstanding dispute on the Teesta river-sharing agreement between the two countries

For India, there is a lot on the table right now. It has just assumed the presidency of the G20. It is keen to play a role in brokering peace in Ukraine. In the coming year, the government will have to spend time and resources in stabilising the domestic economic situation in view of the 2024 general election.

Besides, the political ruckus in Bangladesh is happening at a time when China’s incursions along the Line of Actual Control (LAC) have again begun. India cannot afford to let China have an upper hand in dealing with the crisis in Bangladesh. Experts feel that, given the relationship between India and Bangladesh, India definitely can, and should, play a role in facilitating stability in Bangladesh. 

BNP on the offensive

Over the years, a string of issues has kept BNP on its toes for criticising Hasina’s supposed growing camaraderie with Modi. Defence pacts signed between India and Bangladesh were flagged by critics as they believed that these MoUs undermine the independence of Bangladesh’s armed forces in choice of procurement or training and unfairly binds them to India.

Among a string of issues that are disenchanting Bangladeshi voters – a huge chunk of them peasants – is the longstanding dispute on the Teesta river-sharing agreement between the two countries. Dhaka wished for an equitable distribution of the river water with India on the lines of the Ganga Water Treaty, but nothing significant has materialised yet. Bangladeshis, who live along the Teesta River, have been facing enormous woes, flooding being one of them. 

Hasina’s critics believe that the benefits between the two countries flow only from Dhaka to New Delhi and not vice-versa and that India should equally reciprocate. Bangladesh has been maintaining a sturdy crackdown on Islamic radical groups in the country, helping New Delhi contain the violence in the eastern and north-eastern states.

Last month, Hasina said that she hopes Bangladesh and India would be able to resolve the Teesta water sharing and other issues through deliberation and dialogue. Perhaps, if Modi extends a helping hand to Dhaka, it could help Hasina assuage the anger of her citizens and defuse the unrest that can potentially land the country in disaster.

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