Bangladesh was one of the most attractive emerging markets globally until last year when a democratically elected government was overthrown and the then Prime Minister Sheikh Hasina had to flee to India to save her life. Half a century after independence, Bangladesh emerged as a remarkable success story, transforming itself from one of the world’s poorest nations into a global hub for ready-made garment manufacturing. However, despite its economic strides, the country slipped into a period of uncertainty last year, marked by governance challenges and a fading sense of direction for the future. The country aspired to graduate from the Least Developed Countries (LDC) status in 2026 and to reach high-income status by 2041. However, given the current situation, this goal appears far from achievable within the set timeline.
On the eve of Sheikh Hasina’s departure, Bangladesh’s economy still reflected notable strengths. Between 2009 and 2024, during her second tenure, annual GDP growth rose significantly, reaching a peak of eight per cent in 2019. In FY 2023–24, total FDI inflows amounted to USD 4,188.60 million. Overall, Bangladesh underwent a substantial economic transformation, shifting from a primarily agrarian, subsistence-based society to a manufacturing-driven economy. Despite strong growth indicators, underlying structural weaknesses remained. Youth unemployment was a key trigger for public anger and the July 2024 protests, with those aged 15–29 representing only 28 per cent of the population but nearly 83 per cent of the unemployed in 2023.
According to World Investment Report 2025, In 2024, Bangladesh saw a decline of 13 per cent to $1.3 billion in Foreign direct investment (FDI). The FDI showed resilience, with its strongest performance between January and March 2025 ($864.6 million) compared with $490.4 million in late 2024 and only $104.3 million during July–September 2024, when political turmoil disrupted inflows. Asian Development Bank (ADB) projects 3.9% growth in 2025 for Bangladesh. The ADB attributes the slowdown to weak domestic demand, natural disasters, high inflation, and industrial disruptions caused by political unrest.
While Bangladesh’s economic stability may not have deterred significantly, its relations with India have undergone a noticeable shift. Dhaka appears to be distancing itself from the legacy of 1971, attempting to realign with those who once committed atrocities against its people. China and Pakistan have drawn closer to Dhaka following last year’s student protests. As a result, India has lost a reliable ally in the form of the Awami League. China has consistently interfered in the internal politics of Bangladesh. Recently, a team of four Chinese worked alongside medical experts from the United Kingdom to treat former Prime Minister Khaleda Zia.
Pakistan too is grabbing every single opportunity to create influence in Bangladesh. Pakistan’s Joint Chiefs of Staff Committee chairperson, General Sahir Shamshad Mirza, visited Dhaka in October. Yunus gifted him a book, titled ‘Art of Triumph’, whose cover carried the distorted map of Bangladesh. The map showed a part of India’s Northeast as part of Bangladesh territory – aligning with calls by radical Islamist groups for a “Greater Bangladesh”. This should be a cause for concern for India, as Yunus has repeatedly targeted India’s Northeast, at one point describing it as landlocked while seeking support from China. Very recently, in Early November, Pakistan’s Navy Chief Admiral Naveed Ashraf met Bangladesh’s Army Chief General Waker-Uz-Zaman and held talks with his counterpart Admiral M. Nazmul Hassan, during his visit to bolster bilateral defence ties. This was followed by Pakistan’s first direct cargo ship to Bangladesh since its 1971 independence docked at the southeastern Chittagong Port last week, signalling a shift in foreign relations under the interim government led by Muhammad Yunus. Both the nations are set to commence direct flights, reportedly in December, after many years.
Considering recent developments of engagements across both India’s western and eastern borders, many of which do not align with New Delhi’s strategic interests, India must act with caution to distance Pakistan from Bangladesh, as these shifts could have significant implications for its long-term geopolitical objectives.
Instability and rising unemployment in Bangladesh drive large numbers of refugees across the Indo-Bangladesh border, creating immigration challenges for India and affecting its demographic balance. External forces have historically attempted to create instability and internal conflict in the northeastern states, and the current proximity between Pakistan and Bangladesh has the potential to further inflame tensions in the region. New Delhi already faces threats to its territorial integrity from two fronts, China and Pakistan, and cannot afford the emergence of a third strategic challenge from Bangladesh. It is imperative that India takes urgent and decisive measures to ensure that Bangladesh does not realign with Pakistan, thereby risking a renewed three-front security dilemma reminiscent of the pre-1971 period. Some suggested measures are discussed in the succeeding paragraphs.
India should prioritise the expansion and revival of Border Haats with Bangladesh as a means of strengthening sub-national economic ties and people-to-people engagement. Currently, seven Border Haats operate along the India–Bangladesh border, with three more under consideration. Each Haat generates approximately ₹4 crore in annual trade while facilitating cultural exchange through local goods and traditional crafts. Political uncertainty following the fall of Sheikh Hasina’s government has disrupted these mechanisms, adversely affecting border communities. Given the 4,096 km shared border, New Delhi should not only revive stalled Haats but also expand the model across West Bengal, Assam, and Mizoram, while increasing operational days to maximise economic viability and ‘Track 3’ diplomatic engagement.
In the defence domain, India must adopt a more proactive approach to military trade with Bangladesh, which remains overwhelmingly dependent on China for 70–80 per cent of its defence imports. India’s limited success, underscored by the cancellation of the US$21 million GRSE contract, reflects missed strategic opportunities. As Dhaka seeks to diversify its defence procurement and reduce reliance on Beijing, India should position itself as a credible alternative supplier by offering competitive platforms, financing mechanisms, and long-term maintenance partnerships.
Diplomatically, New Delhi must recalibrate its Bangladesh policy by moving beyond a leadership-centric framework. Constructive engagement with the current regime and any future government enjoying domestic legitimacy is essential for sustaining bilateral relations. While India may continue to extend political asylum to Sheikh Hasina, consistent with its established diplomatic practice, this should not impede broader state-to-state engagement or regional stability.
On the economic front, India should explore a bilateral Free Trade Agreement with Bangladesh to institutionalise trade relations beyond existing regional arrangements such as SAFTA. A comprehensive FTA would deepen economic interdependence, safeguard trade continuity during political transitions, and reinforce Bangladesh’s integration with India-centric regional supply chains.
Finally, water cooperation should be leveraged as a strategic confidence-building measure. India and Bangladesh share 54 transboundary rivers, including the Ganga, Brahmaputra, and Teesta. Coordinated river-flow management and hydroelectric cooperation can address Bangladesh’s water security concerns while strengthening institutional trust. Effective collaboration in this domain would serve as a stabilising pillar of India–Bangladesh relations and enhance New Delhi’s regional leadership credentials.
As Pakistan and China continue to deepen their strategic and economic footprint in Bangladesh, India faces a narrowing window to recalibrate its engagement with Dhaka. A reactive or leadership-centric approach risks further erosion of India’s influence in its immediate neighbourhood. Instead, New Delhi must adopt a multidimensional strategy that combines grassroots economic initiatives, defence cooperation, institutionalised trade, and resource-based diplomacy. Proactive and sustained engagement—rooted in long-term interests rather than short-term political alignments—will be essential if India is to counter external inroads and retain strategic relevance in Bangladesh.
Thank-you for this insight
Definitely an interesting situation in Indian geopolitics, great insights from MP sir as always!
Very informative analysis .
If India would not be there Bangladesh would not be even exists in worlds maps. Our soldiers have been matryed to give them independence. New Delhi has to open his eyes so that a better example can be setup for Dhaka.