India’s Trans-shipment Ban Serves as a Big Blow to Bangladesh’s Apparel Ambitions

India’s decision to revoke the trans-shipment facility marks a critical shift in regional policy. The facility, operational since 2020, was a product of India’s “Neighbourhood First” initiative and a gesture of goodwill toward Bangladesh. Under it, Bangladeshi cargo could move through Indian land ports and be transported via Indian territory to third-party countries like Nepal and Bhutan. This reduced transportation time by as much as 50% and significantly cut costs for Bangladesh’s exporters—especially for the high-speed apparel sector. It was logistical bliss.

Then, on 9 April, Indian customs authorities announced the withdrawal of this privilege. The official explanation cited internal customs complications, delays in Indian cargo clearance due to the mixing of Bangladeshi consignments, and rising logistical costs. But observers suggest that the move was prompted more by political developments than operational inefficiencies.

Bangladesh’s warming of ties with China seem to have played a major role. During his Beijing visit, Yunus, made remarks that were seen in India as undermining its strategic position. Describing India’s Northeast as “landlocked” and portraying Bangladesh as the region’s maritime saviour, Yunus appeared to suggest Bangladesh might prioritise Chinese strategic interests in the Bay of Bengal. This, for India, set alarm bells ringing. The Bangladesh leader’s veiled threat could have been about blocking access for the Northeast to the seas. So, India blocked Bangladesh’s trans-shipments.

India and Bangladesh have not been on the best of terms since the latter’s former Prime Minister, Sheikh Hasina, fled her country amid violent protests and sought refuge in India on 5 August 2024. Reports say she is still in India and the Indian Ministry of External Affairs has refrained from commenting on the arrest warrant issued against her by Bangladesh's International Crimes Tribunal. And, India has repeatedly expressed concern over the continued attacks on Hindu minorities in Bangladesh.

It was in this backdrop that Yunus had visited China in March. India, wary of growing Chinese influence in South Asia through the Belt and Road Initiative (BRI), saw his comments as a red flag. Already watching closely as China builds ports in Sri Lanka and infrastructure in Nepal and Pakistan, India may have seen Bangladesh’s overture as the latest in a chain of regional shifts toward Beijing.

By withdrawing the trans-shipment facility, India has sent a message: strategic alignment with rivals will come at a cost. But the cost is not just diplomatic—it’s economic, especially for Bangladesh.

The immediate impact of the ban is being felt in Bangladesh’s $47 billion apparel industry, which forms the economic backbone of the country. Major retailers—H&M, Zara, Uniqlo and Walmart—source vast quantities of apparel from Bangladesh. For them, reliability of supply chains is crucial.

The Indian land transit provided a swift and relatively affordable route, especially to landlocked neighbours like Nepal and Bhutan, and even parts of northern India where some goods were temporarily warehoused before international shipping. With India shutting this corridor, cargo now has to be rerouted—through longer sea routes or new air-sea combinations via third-party countries.

One such workaround now being done on a trial basis involves shipping garments from Chattogram to the Maldives and then using sea-to-air logistics to reach Europe and the US. While this bypasses Indian territory entirely, it naturally introduces delays and raises costs substantially—by as much as 15–20% according to some Bangladeshi exporters.

Moreover, this redirection comes at a time when Bangladesh is already under economic pressure. The US imposed a 37% duty on several Bangladeshi garment categories. EU markets are also becoming more competitive and compliance-heavy, with new ESG-related criteria under consideration. These headwinds make India’s decision especially untimely for Bangladesh’s manufacturers.

The crisis also exposes the vulnerabilities of over-dependence on one trade route. Over the years, despite efforts to diversify, India remained a primary regional transit partner for Bangladesh. This episode could accelerate Dhaka’s long-term plans to strengthen ties with alternative trade hubs like Sri Lanka, the UAE, and even East African ports for exports to non-traditional markets.

Still, these are long-term plays. In the short term, Bangladesh’s readymade garment industry faces margin pressure, delayed shipments, and the potential loss of credibility with international buyers—many of whom already treat South Asian suppliers as interchangeable.

Even this is not without a context. Indian apparel manufacturers have long raised concerns over a host of issues, including the trans-shipment facility itself. In February 2024, the Apparel Export Promotion Council (AEPC) had requested the Central Board of Indirect Taxes and Customs (CBIC) to revoke permissions allowing Bangladeshi cargo to be trans-shipped through Delhi's Air Cargo Complex. Previously, such transshipment was only allowed through the Kolkata Air Cargo complex.

AEPC Chairman, Sudhir Sekhri, had highlighted, “The continuing Red Sea crisis has already increased logistical costs for the exporters and it has also led to shift of export shipments from sea to air mode. At this crucial time, allowing Bangladeshi export cargo from Delhi Air Cargo Terminal will further increase the logistical challenges and increase the transportation cost for apparel exporters. Almost 20–30 loaded trucks come to Delhi everyday which slows down cargo smooth flow. This has led to an excessive increase in air freight rates, delay in handling and processing of export cargo and severe congestion at the Cargo Terminal at the IGI Airport, Delhi; resulting in exports of Indian apparel exports through Delhi air cargo complex becoming uncompetitive.”

Allegations abound. Industry associations have—in the past—alleged that Bangladesh was enabling the backdoor entry of Chinese textiles into India. There have also been concerns that Bangladesh imports Chinese fabrics, manufactures garments using its low-cost labour, and exports these garments to India without paying import duties, leveraging its Least Developed Country (LDC) status under SAFTA (South Asian Free Trade Area). Industry experts had frequently urged the Indian government to tighten the rules of origin under SAFTA to prevent misuse.

India continues to explore policy measures to strengthen the rules of origin under SAFTA. This includes considering mandatory sourcing of yarn and fabric from within SAFTA member countries to ensure that the benefits of duty-free access are not exploited by non-member countries like China. In March 2025, the Indian government amended the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR) to enforce stricter documentation and verification processes. These changes aim to prevent the misuse of free trade agreements by ensuring that goods claiming preferential treatment genuinely originate from the exporting country.

While the current trade disruption appears economic on the surface, the underlying narrative is deeply geopolitical. South Asia is increasingly becoming a theatre for strategic competition between India and China. And smaller economies like Bangladesh are finding themselves in the crosshairs.

For decades, India has sought to maintain its influence in the region through cultural, economic, and infrastructural integration. Bangladesh, in particular, has benefited from generous lines of credit, energy cooperation, and trade partnerships. However, in recent years, China has emerged as an assertive alternative for Bangladesh—offering infrastructure financing, port development, and preferential trade deals without demanding political alignment.

China is currently Bangladesh’s largest trading partner and a key investor in its mega-projects, including the Padma Bridge rail link and the Payra deep-sea port. With Dhaka increasingly reliant on Chinese capital and technical expertise, New Delhi views this closeness with growing suspicion.

India’s actions—revoking trade facilities and tightening visa norms—appear to be a pre-emptive move to assert its position. But such measures, many argue, could backfire. By cutting off logistical cooperation and creating bottlenecks, India risks pushing Bangladesh further into China's economic embrace. Additionally, these moves may be in violation of WTO obligations, which mandate that countries not unilaterally restrict transit rights—especially for landlocked trade.

Bangladesh, for its part, must now walk a diplomatic tightrope. While economic pragmatism pushes it toward diversified partnerships—including with China—it cannot afford to alienate India, given its geographical proximity and transit leverage.

This geopolitical tug-of-war will likely intensify in the coming days. Regional groupings like BIMSTEC and SAARC, already weakened by bilateral disputes, may become even less effective. For Bangladesh’s garment sector, the real worry is that this diplomatic game of chess could lead to a steady erosion of export reliability and regional cohesion.

Bangladesh has been actively pursuing deeper economic integration with both the Regional Comprehensive Economic Partnership (RCEP) and the Association of Southeast Asian Nations (ASEAN), driven by its upcoming graduation from Least Developed Country (LDC) status in 2026.

In October 2024, Bangladesh's interim government initiated the process to join RCEP—the world's largest trade bloc encompassing 15 Asia-Pacific nations, including China, Japan, South Korea, Australia, New Zealand, and all 10 ASEAN members. This move is meant to mitigate potential trade disadvantages post-LDC graduation, as Bangladesh will lose preferential market access to many RCEP countries. Studies suggest that joining RCEP could boost Bangladesh's exports by over 17%, particularly benefiting sectors like apparel and textiles.

Meanwhile, as Dhaka scrambles to find alternative routes and New Delhi asserts its influence, the stakes go beyond garments and containers. The play is now ready for its next act.