Navigating Bangladesh crisis: Silver linings, challenges for Indian trade

Recent developments in Bangladesh have caused ripples across various sectors in India, particularly those with export ties to the neighbouring country. While the broader impact on India’s trade remains muted, certain industries are beginning to feel the strain as disruptions persist.

Cotton yarn, footwear, fast-moving consumer goods (FMCG), and soft luggage are among the sectors facing operational challenges, raising concerns about revenue and working capital cycles.

According to CRISIL, the ongoing crisis could present significant risks for industries heavily dependent on Bangladesh as a demand centre or production hub. Cotton yarn manufacturers, for instance, could see a hit to their revenue, as Bangladesh accounts for 8-10 percent of their sales.

While their profit margins may not suffer as much due to already slim spreads, the loss of a key export market is likely to pressure their overall performance.

Similarly, companies in the footwear, FMCG, and soft luggage sectors—many of which operate manufacturing facilities in Bangladesh—have faced operational disruptions.

Although most have resumed activities, the full ramp-up of production remains uncertain, raising concerns about supply chain continuity and long-term profitability.

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The power sector is also grappling with the fallout. Engineering, procurement, and construction (EPC) firms working on projects in Bangladesh have had to recall a large portion of their workforce, leading to delays in project execution.

Due to these disruptions, revenue for these companies is expected to fall short of earlier forecasts. Furthermore, power companies that supply electricity to Bangladesh are facing delayed payments, adding to the financial strain.

A looming concern is the increasing debtor risk across several sectors, with many transactions reliant on letters of credit (LCs) issued by Bangladeshi banks. The devaluation of the Bangladeshi taka is compounding the issue, as companies may find themselves exposed to forex risks if payments are delayed or defaulted on.

While some sectors, such as ship-breaking, jute, and ready-made garments (RMG), are seeing increased inquiries from international buyers—particularly from the US and Europe—the broader outlook remains cautious.

A prolonged crisis could further destabilise the already fragile trade links, leaving Indian exporters in a precarious position.

The evolving situation in Bangladesh serves as a reminder of the interconnectedness of regional economies, and Indian companies with exposure to the country will need to navigate these challenges carefully in the months ahead. 

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