Understanding informal agrifood trade between India and Bangladesh
Informal trade
Informal cross-border trade plays a major role in the BIMSTEC¹ region, given the shared borders between member countries such as India with Bangladesh and Nepal.
Formally recorded agrifood
trade² between India and Bangladesh
In 2021/22, India had a trade surplus of US$3.5 billion in agrifood products with Bangladesh.
Share of agricultural products in India's total exports and imports with Bangladesh
Estimated informal agricultural trade, India-Bangladesh
Major agricultural items traded informally between India and Bangladesh
³ All studies were conducted after controls on phosphorus and potassium (P&K) fertilizers were lifted on August 25, 1992. India’s Ministry of Agriculture introduced a concession scheme for decontrolled P&K fertilizers on an ad-hoc basis as of October 1, 1992, which the government allowed to continue until March 31, 2010. As of April 1, 2010, the government introduced a nutrient-based subsidy policy
(as of May 1, 2010, for single super phosphates), which continued the former concession scheme for decontrolled P&K fertilizers.
Key questions for
understanding informal trade
How is informal trade initiated?
How do
borders facilitate informal trade?
What is
informally exported? Imported?
How is informal trade organized and how is product quality ensured?
How are prices established and payments made in exchange?
What are the reasons for trading informally?
Who are the linkmen (mediators) and what are their roles?
How are
contracts enforced and failures managed?
How is informal trade organized?
Wholesale market
Retailer
Linkmen
Carrier trading informally
Retailers in Phansidewa, India, procure goods from the wholesale market in Siliguri, India.
5–10 linkmen, who act as mediators and are also known as paraparkari, procure these goods from the retailers. The linkmen have partners on each side of the border and organize the informal trade.
In one day, carriers make 2–3 trips on foot from India to Bangladesh to export the goods. Around 50 carriers are involved, of whom 80 percent are women. Carriers are paid Rs. 200–250 per trip by the linkmen.
Factors driving informal trade
References
The literature categorizes informal trade into three types:
unregistered traders or firms that operate outside the formal economy
1
2
3
Informal trade is defined through the exchange process and consists of unrecorded trade flows that escape official statistics. “Informality” refers to the nature of the trade, not the trader's status.
registered firms that evade regulations and duties
registered firms that partly evade regulations and duties through illegal practices
India’s agrifood exports to Bangladesh stood at US$3.9 billion in 2021/22. Cereal comprised the top agricultural export, contributing 56 percent to overall agrifood exports and 23 percent to total merchandise exports.
Grains and cereals, like rice, wheat, and maize, along with sugar were among India’s top exports to Bangladesh.
An analytical framework
An example from Phansidewa, West Bengal, on the India-Bangladesh border
Other
enabling
factors
Chaudhari, S.K. 1995. “Cross Border Trade Between India and Bangladesh.” NCAER Working Paper 58. National Council for Applied Economic Research, New Delhi. https://www.ncaer.org/publication/cross-border-trade-between-india-amp-bangladesh
CUTS International (Centre for International Trade, Economics & Environment). 2018. Linkages and Impacts of Cross-border Informal Trade in Agriculture Inputs in Eastern South Asia. Jaipur, India: CUTS. https://cuts-citee.org/pdf/Research_Report_on_Linkages_and_Impacts_of_
Cross-border_Informal_Trade_in_Agricultural_Inputs_in_Eastern_South_Asia.pdf
Das, SK. 2014. “Border Economy and the Production of Collective Subjects in India’s East and the North-East.” India Quarterly 70 (4): 299–311. https://journals.sagepub.com/doi/abs/10.1177/0974928414545929
Hannan, A. 2016. “Informal Trade, Livelihoods and Extra-Judicial Killings in North Bengal Frontier of Indo-Bangladesh Border.” North Eastern Geographer 39 (1&2): 66–80. https://www.researchgate.net/publication/343346074_INFORMAL_TRADE_LIVELIHOODS_AND_
EXTRAJUDICIAL_KILLINGS_IN_NORTH_BENGAL_FRONTIER_OF_INDO-_BANGLADESH_BORDER
Lohia, P. 2021. “Possibilities of Justice: Torture at the Indo-Bangladesh Border.” Paper presented at the Combatting Torture in Asia: Law and Practice Online Conference, University of Melbourne, May 18–19. https://law.unimelb.edu.au/__data/assets/pdf_file/0007/3794128/
Lohia_Prachi.pdf
Nath, A. 2012. “The Role of Trade and Investment in Improving the Growth Prospects of Tripura: With Reference to Bangladesh.” PowerPoint presentation at the Stakeholders Conference: MacArthur’s Strategic and Economic Capacity Building Program, Indian Council for Research on International Economic Relations, July 30. https://icrier.org/pdf/ashish_nath_trade_investment.pdf
Pohit, S., and N. Taneja. 2000. “India’s Informal Trade with Bangladesh and Nepal: A Qualitative Assessment.” Working Paper No. 58. Indian Council for Research on International Economic Relations, New Delhi. https://icrier.org/pdf/nishapohit.pdf
Rahman, M., and E. Bari. 2018. ”Formal and Informal Agricultural Trade of Bangladesh with SAARC Countries: Emerging Trends and Policy Challenges.” Working Paper 114. Centre for Policy Dialogue (CPD), Dhaka. https://think-asia.org/handle/11540/8576
Rahman, A., and A. Razzaque. 1998. Informal Border Trade between Bangladesh and India: An Empirical Study in Selected Areas. Bangladesh: Bangladesh Institute of Development Studies.
Ray, G.S. 2022. “Smuggled from India, Polished in Bangladesh: Why this Cheap Rice Variety is Causing a Stir in Dhaka.” Money Control, March 1. https://www.moneycontrol.com/news/business/commodities/smuggled-from-india-polished-in-bangladesh-why-this-cheap-rice-variety-is-causing-a-stir-in-dhaka-8179421.html
Sikder, M.J., and M.T. Khan. 2007. ”Informal Trade and Movement of People at the Bangladesh-India Border.” Working Paper 38. RMMRU (Refugees and Migratory Movements Research Unit), Dhaka. https://www.researchgate.net/publication/341654548_Informal_Trade_and_
Movement_of_People_at_the_Bangladesh-India_Border
Singh, S. 2015. HYV Rice Seeds Accessibility and Availability in India and Bangladesh: Stakeholder’s Perspective. Jaipur, India: CUTS Centre for International Trade, Economics & Environment. https://papers.ssrn.com/sol3/papers.cfm?abstract_
id=2597463
USAID and EAT (Enabling Agricultural Trade). 2014. Regional Trade in Seed, Fertiliser, and Strategic Grains: A Review of the Legal, Regulatory, and Institutional Constraints to Growth Across South Asia. Washington, DC: USAID/EAT. https://cuts-citee.org/pdf/EAT_SouthAsia_Report_
041514_web.pdf
World Bank. 2006. “India-Bangladesh Bilateral Trade and Potential Free Trade Agreement.” Bangladesh Development Series, Working Paper 13. Washington, DC: World Bank Group. https://documents.worldbank.org/en/publication/documents-reports/documentdetail/
763971468041986093/main-report
¹ Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Cooperation.
² Agrifood trade data include sections related to animals and animal products (HS 01–05), vegetable products (HS 06–15), foodstuffs (HS 16–24), fertilizer (HS 31), and agricultural machinery (HS 8432-8438).
Other influences include cultural, social, and domestic factors, and ethnic relations. Ethnic ties play an important role in ensuring that goods move safely, and payments are made.
As an example of a domestic factor, Bangladeshi farmers face a lack of investment in seed development and poor postharvest management, which can lead to a lack of new seed varieties. To obtain new varieties, local farmers may seek out seeds from nearby border areas, thus leading to informal trade in rice and other vegetable seeds.
Regulatory barriers
Domestic policy distortions
Policy
barriers
Institutional
factors
Policy barriers raise prices and hamper trade in formal markets
Policy barriers to trade include high tariffs on agricultural goods, commodity restrictions and bans, and prohibitions and quotas. Restricted commodities can be traded if certain requirements are met, such as government licensing or authorization, while prohibited commodities cannot be traded under any circumstance. Bans and quotas are generally short-term policy measures to address short-term domestic issues, while restrictions and prohibitions are generally long-term policy measures.
These policy barriers affect trading time and costs, which can thus lead to informal trade.
Institutional factors raise transaction costs in formal channels
Institutional factors lie at the core of transaction costs. Inefficiencies in transportation, infrastructure, and complex customs procedures lead to high transaction costs, which often deter traders from using these channels.
Regulatory barriers such as safety standards make formal trade more difficult
Standards are increasingly important in international trade. Imports of animal and plant products are subject to sanitary and phytosanitary measures and other technical barriers. To avoid these requirements — which can be cumbersome and time-consuming — traders prefer to trade informally.
Domestic policy distortions allow informal traders to profit
In India, agricultural policies have aimed to ensure food security and address poverty through a two-track approach — keeping food prices low for the consumer (by using stockholdings for the public distribution system and large food subsidies) and incentivizing production through domestic support (through subsidies on inputs and minimum support prices for some products).
Such policies keep prices below market value, thus encouraging informal trade largely through leakages from the formal trading system.
Click to explore the factors
Source: Chaudhari (1995); Pohit and Taneja (2000); USAID and EAT (2014); Rahman and Bari (2018); CUTS International (2017; 2018); Ray (2022); Sikder and Khan (2007); Lohia (2021); Das (2014); Hannan (2016); Singh (2015).
Indian Council for Research on International Economic Relations (ICRIER)
Nisha Taneja
Sanjana Joshi
Sanya Dua
International Food Policy Research Institute (IFPRI)
Devesh Roy
Abul Kamar
Mamata Pradhan
Sunil Saroj