Detailed Analysis of the Rescinding of Circular No. 29/2020-Customs and its Impact on Trade Between India and Bangladesh

[YAGAY andSUN]

Introduction

On April 8, 2025, the Central Board of Indirect Taxes and Customs (CBIC) issued a circular (Circular No. 13/2025-Customs) rescinding Circular No. 29/2020-Customs. The 2020 circular had provided a mechanism for the transshipment of export cargo from Bangladesh to third countries via Indian Land Customs Stations (LCSs), such as through ports and airports. This arrangement benefited Bangladesh by facilitating smoother and more cost-effective transit of its exports, but it also faced opposition from certain Indian exporters who cited logistical bottlenecks and congestion at key terminals.

The decision to revoke this transshipment facility has far-reaching implications, particularly for Bangladesh’s export logistics and the broader trade relationship between India and Bangladesh. This analysis explores the motivations behind the circular’s rescinding, the potential consequences for Bangladesh’s export sector, the reactions from stakeholders, and the diplomatic context surrounding the issue.

1. Background and Context

In June 2020, the Indian government introduced Circular No. 29/2020-Customs to allow Bangladesh to use India as a transit route for its exports. The agreement primarily facilitated the movement of export cargo from Bangladesh destined for third countries, such as Myanmar, Bhutan, and Nepal, through Indian Land Customs Stations. This move was seen as a sign of goodwill between India and Bangladesh, promoting regional trade and improving connectivity for landlocked countries in the region.

However, the arrangement was not without controversy. Indian exporters, particularly those in the apparel sector, began raising concerns regarding congestion at cargo terminals in major cities like Delhi. The entry of large numbers of Bangladeshi trucks was clogging the terminals, disrupting local logistics, and inflating freight costs. The Apparel Export Promotion Council (AEPC) voiced dissatisfaction, claiming that the transshipment facility was taking up vital air cargo space that could otherwise be used for Indian exports.

The issue escalated when Muhammad Yunus, a renowned Bangladeshi economist and Nobel laureate, made controversial remarks about India's northeastern states, which he described as "landlocked." Yunus suggested that Bangladesh could become a strategic gateway for China to expand its economic presence in India’s northeast by offering Chinese access to the ocean via Bangladesh’s ports. His remarks triggered a diplomatic backlash from India, which is seen as sensitive about its geopolitical interests in the region, particularly with China’s growing presence.

The combination of logistical challenges faced by Indian exporters and the geopolitical friction surrounding Yunus’ comments likely led to the decision to rescind the circular.

2. Reasons for Rescinding the Circular

The decision to revoke the transshipment facility can be analyzed through several lenses:

a. Domestic Economic Interests of India

• Logistical Bottlenecks: One of the primary reasons for rescinding Circular No. 29/2020 was the strain on India’s logistics infrastructure. With 20-30 Bangladeshi trucks entering Delhi daily, major cargo terminals were facing congestion, which not only delayed Indian exports but also increased costs for Indian businesses. The Apparel Export Promotion Council (AEPC) had already raised concerns over how the influx of Bangladeshi cargo was monopolizing freight capacity that could otherwise be used by Indian exporters.
• Increased Freight Costs: The congested terminals and air freight limitations were driving up the costs for Indian exporters, which hurt their competitiveness in global markets. By halting the transhipment facility, India seeks to free up logistical space for its own goods, especially in the apparel sector, which is a major industry.

b. Geopolitical Tensions with Bangladesh

• Muhammad Yunus’ Remarks: Yunus' description of India’s north-eastern states as "landlocked" and his suggestion that Bangladesh could provide China with a gateway to the region raised tensions. India perceives its north-eastern states as strategically important, and any external influence, particularly from China, in that region is viewed with caution. Yunus' comments may have been seen as undermining India’s territorial integrity and economic interests, prompting India to act by revoking the transhipment facility as a form of retaliation or to assert control over the region’s trade routes.
• Diplomatic Signalling: The decision to rescind the circular could also be seen as a diplomatic response to Yunus’ remarks. By removing this trade concession, India is signalling that it will not tolerate actions that could undermine its geopolitical interests, particularly with regard to China’s influence in South Asia.

c. Prioritizing Domestic Exporters’ Interests

• Indian exporters, especially in the apparel and garment sector, had consistently raised concerns about the impact of the transhipment facility on their businesses. The facility allowed Bangladeshi exports to transit through India, which meant that certain cargo spaces were occupied by foreign goods. With the circular being rescinded, Indian exporters are expected to benefit from more available capacity for their own goods, reducing logistical delays and potentially lowering transportation costs.

3. Implications for Bangladesh’s Export Sector

The rescinding of Circular No. 29/2020-Customs is likely to have significant consequences for Bangladesh’s export logistics:

a. Increased Transit Time and Costs

• Delays: Without the facility to tranship goods through India, Bangladeshi exporters will face longer and more complicated routes to reach third-country markets. The previous mechanism allowed goods to bypass complex transit routes, saving time and money. With the facility now rescinded, exporters will likely face longer delays at border crossings and more paperwork, which will slow down the movement of goods.
• Higher Costs: As goods will now have to follow alternate routes that do not pass through India, exporters may incur additional transport and transit costs. These costs could further reduce the competitiveness of Bangladeshi exports in global markets, especially for industries with narrow profit margins, such as textiles and garments.

b. Trade Disruptions with Neighbouring Countries

• Impact on Nepal, Bhutan, and Myanmar: Bangladesh’s trade with neighbouring countries like Nepal, Bhutan, and Myanmar, which previously relied on the transit facility through India, will likely be disrupted. These countries will now have to explore alternative routes for receiving Bangladeshi exports, potentially leading to delays and higher transportation costs.
• Export Diversification: Bangladesh’s diversification strategy in export markets may also be hindered, as the efficient logistics corridor previously provided by the transhipment facility is no longer available. The lack of access to a streamlined route could make Bangladeshi products less attractive to foreign buyers due to the added costs and uncertainties in delivery times.

c. Strategic Shifts in Trade Policy

• Bangladesh may now need to renegotiate trade agreements with India or seek new bilateral agreements to address its logistics challenges. Additionally, Bangladesh may explore the use of other regional or international transit corridors to mitigate the impact of the rescinding of the circular.

4. Broader Implications for India-Bangladesh Trade Relations

The decision to rescind Circular No. 29/2020-Customs is not just an economic move; it also reflects the broader political and diplomatic landscape between India and Bangladesh. The two countries have historically enjoyed a cooperative trade relationship, but this decision could strain ties.

a. Potential Diplomatic Fallout

• While the rescinding of the circular may be viewed as a domestic trade-related decision, the timing and context make it clear that geopolitical factors played a significant role. India’s strategic interests in its northeastern states and its concerns about China’s growing influence in the region have clearly shaped this decision. The diplomatic fallout could include increased tensions in India-Bangladesh relations, especially if Bangladesh perceives the move as politically motivated rather than economically necessary.

b. Future Prospects for Regional Cooperation

• Moving forward, India and Bangladesh may need to engage in dialogue to prevent further trade disruptions and address the concerns raised by exporters on both sides. Strengthening regional trade cooperation could help both countries mitigate the negative impacts of this decision while maintaining their strategic and economic interests in the region.

Conclusion

The rescinding of Circular No. 29/2020-Customs marks a significant shift in India-Bangladesh trade relations, with substantial implications for Bangladesh's export logistics and the broader regional trade landscape. While India’s concerns about domestic logistical issues and geopolitical tensions with Bangladesh play a central role, the move could have serious consequences for Bangladesh’s economy, particularly in terms of increased costs and delays for its exporters. The evolving diplomatic and trade dynamics between the two countries will need careful management to ensure continued cooperation in the future.