India Withdraws Transshipment Facility for Bangladesh: What It Means for the Economy

Bangladesh is facing a new and unexpected economic challenge. In a strategic move, the Indian government has officially withdrawn the transshipment facility previously granted to Bangladesh, a decision that could have serious implications for bilateral trade, regional connectivity, and Bangladesh’s export operations to landlocked neighboring countries.

India’s Withdrawal of Transshipment Facility: What Was It and Why It Mattered

On April 8, 2025, the Central Board of Indirect Taxes and Customs (CBIC) of India issued a formal notification cancelling the transshipment circular issued on June 29, 2020. Under that earlier circular, Bangladesh was allowed to use India’s land customs stations (LCS), seaports, and airports to export goods to third countries such as Nepal, Bhutan, and Myanmar.

This arrangement significantly benefited Bangladeshi exporters by reducing transit time and logistics costs. For example, Bangladesh could transport cargo via Indian territory—either by road or rail—to reach Nepalese or Bhutanese markets without needing direct access. Similarly, Indian airports, especially the Indira Gandhi International Airport in Delhi, were used to air-ship garments and other goods to Europe and North America more efficiently than through Bangladeshi ports.

Impact on Bangladesh’s Exporters and Economic Outlook

The termination of this facility presents immediate logistical and financial setbacks for exporters. Major export categories that relied heavily on this facility include processed foods, garments, and light manufacturing goods. Companies like PRAN-RFL, which exports to over 145 countries, including Bhutan and Nepal, will face higher costs and delivery delays.

According to Debashish Singh, Head of Business at Danish Food, “We export nearly $200,000 worth of food products annually to Bhutan and Nepal. Without the transshipment route through India, these markets are no longer viable.” These countries also do not accept air cargo for such products due to cost and perishability concerns.

Similarly, in the garment industry, many buyers opted for transshipment via India due to Bangladesh’s high cargo handling costs. Exporters would previously ship via Delhi or Chennai airports to lower their costs. Fazlul Shamim Ehsan, Executive President of BKMEA, emphasized the importance of finding alternative routes, as the Indian option was often more cost-effective than using Bangladesh’s own infrastructure.

Geopolitical Undercurrents and Strategic Concerns

While India’s CBIC has officially cited port congestion, logistical bottlenecks, and delays in its own export operations as reasons for the policy change, observers believe deeper geopolitical motives are at play. Indian media speculates that remarks made by Professor Muhammad Yunus during his recent visit to China may have strained diplomatic ties. Yunus had described Bangladesh as the “gateway to the sea” for India’s northeastern states, and suggested it could become a strategic corridor for Chinese economic expansion.

Such statements reportedly raised concerns in Indian diplomatic circles, with Assam’s Chief Minister calling the comments “highly objectionable” and a potential threat to Indian sovereignty. The timing of the transshipment facility withdrawal—soon after Yunus’s visit—suggests a link, although this remains speculative.

WTO Regulations and Potential Legal Implications

The decision has also raised eyebrows in international trade circles. According to Article V of the General Agreement on Tariffs and Trade (GATT) under the World Trade Organization (WTO), member countries must allow freedom of transit for landlocked nations through their territory. This transit must not be subject to unreasonable delays or charges. Experts argue that India’s cancellation of the facility contradicts these provisions, particularly in how it affects the movement of goods to Nepal and Bhutan.

Should Nepal or Bhutan file a complaint or if Bangladesh escalates the matter diplomatically, it could lead to international arbitration or WTO intervention.

Next Steps for Bangladesh: Challenges and Recommendations

Bangladesh’s Ministry of Commerce has already begun emergency meetings with stakeholders to assess the situation. Trade associations are urging the government to negotiate with India or explore alternative regional routes via China, Myanmar, or direct shipping options. Additionally, there’s growing pressure to upgrade domestic airport and seaport logistics to handle international cargo more efficiently.

Recommended Actions for Export Continuity:

• Strengthen and modernize local seaport and airport infrastructure
• Enter new bilateral transit agreements with Nepal and Bhutan
• Introduce efficient digital customs and logistics systems
• Offer export support packages to impacted sectors

The withdrawal of the transshipment facility comes at a time when Bangladesh is already dealing with rising export tariffs from major markets like the United States. It underscores the importance of building more resilient and independent trade infrastructures that are less dependent on any single transit partner.

FAQs

1. What was the transshipment facility between India and Bangladesh?

It allowed Bangladeshi exporters to use Indian land customs stations, ports, and airports to ship goods to third countries like Nepal and Bhutan, reducing time and costs significantly.

2. Why did India cancel this facility?

India cited operational bottlenecks, including congestion at ports and delays in handling their own exports, as reasons. However, geopolitical tensions may also have influenced the decision.

3. How will this affect Bangladesh’s exports?

Exporters will now face higher transportation costs and potential delays. Some markets, such as Bhutan and Nepal, may become inaccessible without direct transit routes.

4. Is this against WTO trade rules?

Many experts believe it contradicts Article V of the GATT, which mandates unobstructed transit for landlocked countries. A WTO complaint could be possible in the future.

5. What is the government of Bangladesh doing?

The Ministry of Commerce is holding high-level discussions and considering infrastructure upgrades, bilateral agreements, and alternative trade routes to mitigate the impact.