Reassessing Transaction Costs of Trade at the India-Bangladesh Border

SPECIAL ARTICLEEconomic & Political Weekly EPW july 19, 200869Reassessing Transaction Costs of Trade at the India-Bangladesh BorderPrabir De, Buddhadeb GhoshThe year 2007 marked the 23rd anniversary of the advent of the South Asian Association of Regional Cooperation (SAARC). During this time, the nature of the south Asian economy has changed significantly, in ways that reflect the principal policy priorities of the south Asian countries. In the social sector, south Asian countries have led much of the rest of the world, with significant acceleration in the implementation of health and human development and the institution of the rural sector well in advance of the Millennium Development Goals (MDGs). With respect to comparisons of growth rates in income, the south Asian countries transformed their status from laggards in the 1970s to star performers in the 2001 [De and Bhattachar-yay 2007]. The benefits of this have been relatively evenly shared: the rate of decline of rural poverty since the late 1970s has also been one of the fastest [SAARC Secretariat 2006]. Contrasted with these impressive achievements, the story is entirely different elsewhere – in trade or facilitation of trade and transport, south Asia’s performance relative to other regional blocs has progressively deteriorated. Countries within theSAARC do not have significant trade with one another in spite of their geographical proximity and income levels. For instance, intra-regional trade in Association of South-east Asian Nations (ASEAN) at present is about 20 per cent per annum, which increased from a mere 5 per cent in the beginning of the 1990s, whereas the same in south Asia is only 4.8 per cent and that too, has been hovering at the same position for the last decade. The official intra-regional trade in south Asia is about $ 6.25 billion1 where India alone contributes more than 45 per cent of total intra-regional trade. The rest is equally distributed among Bangladesh, Nepal, Pakistan and Sri Lanka. In recent years, south Asia has received growing attention as a region that has successfully begun the process of regional integra-tion. By placing the South Asian Free Trade Agreement (SAFTA) in effect from July 1, 2006, south Asian countries are now looking towards a deeper integration of the region.2 This agreement would lead to growth in intra-regional trade from $ 6 billion to $ 14 billion within two years of its existence.3 On this onset of the opening of free trade in the region, countries in south Asia are suffering from high trade costs due to inadequacy in trade and transport facilitation [De 2007c]. In general, transport flows along south Asia’s road, rail, air and waterway corridors are constrained by poor infrastructure condition, congestion, high costs and lengthy delays [Subramanian 1999; Subramanian and Arnold 2001; De and Ghosh 2001; De 2005; Taneja 2007]. Regional trade is hampered by restrictive domestic policies, lack In recent years, south Asia has received growing attention as a region that has successfully begun the process of regional integration. The opening of free trade in the region has led to countries in south Asia experiencing high trade costs due to inadequacy in trade and transport facilitation. South Asia’s trade is constrained by poor infrastructure condition, congestion, high costs, and lengthy delays. These problems are particularly severe at border crossings, many of which pose significant barriers to trade. This paper supplements the findings of previous studies on this subject and reassesses the transaction costs for India’s overland exports to Bangladesh. It finds that transaction costs of India’s exports to Bangladesh have increased despite simplification of documentations at border. The paper concludes that the rent-seeking informal economy is very much deep-rooted and making the trade transaction expensive at border. This paper is based on a project funded by the Asian Institute of Transport Development, New Delhi. An earlier version of the paper was presented at RIS-SACEP Regional Conference on ‘Economic Cooperation in SAARC: SAFTA and Beyond’, held at New Delhi on March 19, 2007. Authors are particularly grateful to K L Thapar, Gurudas Das, Ajitava Ray Chaudhury, Nagesh Kumar, Tapan Chattopadhaya and Bhisma Rout for insightful comments. Authors are thankful to Sandip Singha Roy and his team for excellent survey and research assistance. Views expressed by the authors are their personal. The usual disclaimers apply.Prabir De (prabirde@ris.org.in) is with the Research and Information System for Developing Countries, New Delhi. Buddhadeb Ghosh is with the Economic Research Unit, Indian Statistical Institute, Kolkata.

SPECIAL ARTICLEjuly 19, 2008 EPW Economic & Political Weekly70EPWRF – AD

SPECIAL ARTICLEEconomic & Political Weekly EPW july 19, 200871Table 2(b): India’s Top 10 Export Products to Bangladesh at HS 4 in 2004-05HS Code Product Name Value ($ million) Share* (%)1001 Wheat and meslin 189.79 11.811006 Rice 185.76 11.565205 Cottonyarn 113.37 7.060703 Onions, shallots, garlic, leeks, and other alliaceous vegetables, fresh or chilled 66.59 4.142304 Oil cake and other solid residues 59.88 3.737326 Other articles of iron and steel 43.68 2.722701 Coal; briquettes, ovoids, and similar solid fuels manufactured from coal 43.08 2.685209 Woven fabrics of cotton 41.95 2.612710 Petroleum oils and products 39.04 2.430713 Driedleguminous 35.99 2.24*Share in total Indian exports to Bangladesh. Source: Ministry of Commerce and Industry, Government of India.of intra-regional cooperation and inefficient procedures for trade documentation and clearance. All of these problems are parti-cularly severe at border crossings, many of which pose significant barriers to trade. The foremost challenge before south Asian countries, therefore, appears to be to improve logistics services and related infrastructure, which would have a significant impact on regional trade and competitiveness. Within south Asia, bilateral trade between India and Bangladesh covers more than one-fourth of total regional trade. India has been the largest trading partner of Bangla-desh for over last two decades and a remark-able growth in India’s two-way trade with Bangladesh has resulted in robust growth of all the economies in south Asia. However, India-Bangladesh trade issues go beyond the traditional mechanisms of tariffs and quotas and include several “behind-the-border” issues.4 Even though India and Bangladesh have undertaken trade and transport facilitation measures aiming to reduce current physical and non-physical barriers to transportation and transit – by means of both visible infrastructure (such as multi-modal corridors and terminals) and invisible infrastructure (such as reformed policiesand procedures, regulations), costs of intra-regional movement of goods between the two countries are increasingly becoming decisive. It is an appropriate time, therefore, to review the performance of trade facilitating sectors, particularly for India’s exports to Bangladesh and distil from that some lessons for future policy priorities. We start with the problem sectors first, where the need for new policy initiatives is the greatest – transaction costs, trans-action time and procedures and formalities. We therefore discuss trade facilitation and governance and argue that there is a need for a fresh policy approach in these sectors as well. The rest part of the paper is organised as follows. Section 1 provides a broad overview of the bilateral trade between India and Bangladesh. Next, we deal with overland land between India and Bangladesh in Section 2 since it alone constitutes a large part of the overall merchandise trade between the two countries. Section 3 presents the current state of affairs of land border. We then estimate the transaction costs for India’s overland exports to Bangladeshin Section 4. Finally, conclusions are drawn in Section 5. 1 Trade between India and BangladeshBilateral trade between India and Bangladesh is conducted under the provisions of the prevailing India-Bangladesh trade agree-ment, which was first signed on March 28, 1972.5 Under the said trade agreement, both countries provide most favoured nation treatment to each other. However, the agreement does not provide for any bilateral trade concessions. Such tariff concessions are accorded to each other only under the provisions of the South Asian Preferential Trading Arrangement (SAPTA) signed in April 1993, which became effective in December 1995. Under the four rounds of negotiations held so far, India offered concessions on 2,927 products (at six-digit HS classification), of which 2,450 products were offered exclusively to least developed countries (LDCs) including Bangladesh. The concessions that India offered for LDCs were 62,514 and 1,874 products in the first, second and third rounds, respectively. On the other hand, Bangladesh offered concessions on 564 products to non-LDCs, including India. The concessions offered for non-LDCs were for 11, 215 and 338 products in the first, second and third rounds, respec-tively. Later, as a gesture of goodwill, India offered 100 per cent tariff concessions on 16 product groups consisting of 40 tariff lines to Bangladesh during trade review talks in April 2002 held in Dhaka. Duty free access was announced for items under another 39 tariff lines during trade review talks held in March 2003. In order to provide duty free market access, India has recently signed a memoran-dum of understanding with Bangladesh on procedural arrangements for importing eight million duty free apparel articles underSAFTA.6Despite India’s unilateral concessions to Bangladesh and the existence of a large land border between the two countries, India’s trade with Bangladesh is not growing at a considerable pace. Bilateral trade is highly tilted toward India; India’s exports Table 1: India’s Trade with Bangladesh($ million)Year ExportImportTotal 1995-96 1,049.1085.901,135.001996-97 868.9662.23931.191997-98 786.4650.81 837.271998-99 995.6462.40 1,058.041999-2000 636.31 78.15 714.462000-01 935.0480.51 1,015.552001-02 1,002.1859.121,061.302002-03 1,176.0062.051,238.052003-04 1,740.7577.631,818.382004-05 1,606.56 59.26 1,665.822005-06* 1,773.85130.771,904.622006-07* 1,892.55121.91 2,014.46*Refers calendar year.Sources: Ministry of Commerce and Industry, Government of India; and IMF, DOTS CD-ROM, 2006.Table 2(a): India’s Top 10 Export Commodities to Bangladesh at HS 2 in 2004-05HS Commodity Group Volume ($ million) Share*(%)10 Cereals 408.98 25.4652 Cotton 206.79 12.8707 Edible vegetables and certain roots and tubers 105.30 6.5527 Mineral fuels, mineral oils, and products of their distillation, bituminous substances, mineral waxes 82.72 5.1573 Articles of iron and steel 72.72 4.5323 Residues and waste from the food industries; prepared animal fodder 67.43 4.2084 Nuclear reactors, boilers, machinery and mechanical appliances; parts thereof 64.84 4.0487 Vehicles other than railway or tramway rolling stock, and parts and accessories thereof 55.97 3.4825 Salt, sulphur, earths and stone, plastering materials, lime and cement 50.13 3.1272 Iron and steel 44.72 2.78*Share in total Indian exports to Bangladesh. Source: Ministry of Commerce and Industry, Government of India.

SPECIAL ARTICLEjuly 19, 2008 EPW Economic & Political Weekly72to and imports from Bangladesh were about $ 1,892.55 million and $ 121.91 million, respectively in 2006-07 (Table 1, p 71). India’s exports to Bangladesh witnessed an average annual growth of 7.31 per cent in 1995-2006, whereas India’s imports from Bangladesh grew at a much slower pace at 3.81 per cent in the entire period. Therefore, the trade deficit between India and Bangladesh has widened from $ 0.96 billion in 1995-96 to $ 1.77 billion in 2006-07 (Table 1). On the encouraging side, Bangladesh’s exports to India in recent years have witnessed a quantum jump, presumably because of trade liberalisation initi-ated by both the countries under theSAFTA. This suggests that a large potential exists for enhancing India-Bangladesh trade. 1.1 Composition of India’s Trade with BangladeshIndia has a large number of exportable goods. The composition of India’s exports to Bangladesh is diversified with cereals, cotton and vegetable products accounting for a quarter of India’s exports to Bangladesh in 2004-05. Next in importance come textiles and textile products, followed by base metals and related articles. Over five years, beginning 2000-01, while the share of vegetable products increased, that of textiles and textile articles declined. The shares of most of the remaining product groups increased, reflecting greater product diversification. The top 10 export commodity groups (at HS 2-digit level) from India to Bangladesh account for about 70 per cent of India’s total exports to Bangladesh (Tables 2a, 2b, p 71).Table 2(a) shows that the primary Indian export commodities to Bangladesh at the 2-digit HS classification in 2004-05 were cereals, cotton and edible vegetables and certain roots and tubers. However, at the 4-digit HS classification, India’s major exports to Bangladesh in 2004-05 were cotton (not carded or combed); rice, wheat and meslin; onions, shallots, garlic, leeks and other alliaceo; oil cake and other solid residues; coal, briquettes, ovoids and similar solid fuels; flat-rolled products of iron or non-alloy steel; etc (Table 2(b)). Therefore, an overview of India’s exports to Bangladesh reveals that the most important items are those that are required to meet the neighbour’s food deficit and those finished and intermediate raw materials that are required for the country’s industrialisation.7 In addition to official trade, there is a considerable volume of informal trade between India and Bangladesh. Informal exports from India to Bangladesh are about equal to official exports. The composition of informal trade flows is generally complementary to but markedly different from formal trade flows. A large portion of informal exports take place through West Bengal and the north-eastern region (NER) of India, comprising largely of food items, live animals (mainly cattle) and consumer goods. Similarly, unofficial imports from Bangladesh to India are dominated by a few major products, including synthetic yarn, electronic goods and spices.8 1.2 Transaction Costs for Trade in GoodsStudies indicate that south Asia could potentially benefit substan-tially from higher trade, provided trade and transport barriers are removed and transaction costs are minimised.9 As noted in Arnold (2004), Bangladesh has succeeded in improving logistics by modernising customs clearance procedures, especially for exports and temporary imports. However, the country has failed to improve the performance of its transportation system as rapidly as its neighbours have done. The cargo-handling techno-logy and method of operation of the port of Chittagong remain mired in the 1970s. The benefits of multimodal transport are unrealised as a majority of the “full container load” (FCL) contain-ers continue to be stuffed and “unstuffed” at the port. Transport of containers by rail is underdeveloped because of lack of commercial management on the part of Bangladesh Railways. Inland customs facilities and storage are limited and the availa-ble facilities are not located in a way that will minimise overall delivery costs. Slow and uncertain vessel turnaround and container dwell times prevent producers from developing efficient supply chains from the factory to the buyers’ warehouse or introducing just-in-time production. The incidence of transaction costs between India and Bangla-desh for about $ 2 billion two-way official trade is too high; during 2001 to 2006, India incurred about 23.20 per cent of total imports from Bangladesh as trade transaction costs (Table 3). Although the table shows a falling trend, the transaction costs are very high when compared with the developed world or even developing Asia. Costs for not having improved transit and transport infra-structure facilities may be higher if several invisible and unaccountable incidences are added to it. If calculated in terms of opportunities lost due to lack of transport infrastructure, the amount would be staggering. To a great extent, as an effect of high trade costs, bilateral and intra-regional trade activities between India and Bangladesh and among south Asian countries are not shaping up well as yet.Therefore, India and Bangladesh need to minimise trade transaction costs by removing visible and invisible barriers to trade. Countries can tackle transaction costs only through Table 3: Bilateral Trade Transaction Costs for 1995-2006 Transaction Costs (%) 1995-20002001-061995-2006 (AnnualAverage)Bangladesh’s imports from India 15.95 9.06 12.51India’s imports from Bangladesh 37.84 23.20 33.00*Considered between-country transaction costs (TC), as percentage of imports, represented by the difference ofcif (cost, insurance and freight) and fob (free on board) values which are reported inDirection of Trade Statistics Yearbook of the International Monetary Fund, using TCijt = (1 - EXjit / IMijt), where TCijt represents transaction costs between country i and j for the period t, IMijt stands for import (cif price) of country i from country j for the period t, and EXjit denotes export (fob price) of country j to country i for the period t. Many measures have been constructed to measure transaction (transport) cost. The most straightforward measure in international trade is the difference between the so-called cif andfob quotations of trade. The difference between these two values is a measure of the cost of getting an item from the exporting country to the importing country. Here, Bangladesh’s transaction costs do not cover the years 1997 and 2003, whereas the same for India is 2004-06. Source: Calculated by authors based on DOTS CD-ROM 2006, IMF.Table 4: India’s Exports to Bangladesh: Modal Shares(%)Ports Share in Exports LCSs Mode Share in Exports 1996-97 2003-04 1996-97 2003-04 Sea Routes Land RoutesMumbai 9.301.30PetrapoleRoad56.6036.20Jawaharlal Nehru 3.30 6.30 Ranaghat/Gede Rail 5.20 11.50Chennai 1.902.50RadhikapurRail0.601.90Tuticorin 1.801.50Hilli Road2.905.90Vizag 0.702.80MohedipurRoad4.306.90Kakinada 0.902.50Dawki Road0.400.90Others 1.053.80OthersRoad+Rail11.0516.00Source: Calculated based on data provided by DGCIS, Kolkata.

SPECIAL ARTICLEEconomic & Political Weekly EPW july 19, 200873organic colouring materials, unwrought aluminium, other materials of iron and steel, pneumatic tyres, chassis of cars with engines, radio receivers and video apparatus, etc. These are the items, which have shown rising trends in India’s export basket. There are also some important items, which do not figure in Table 6(a) such as cement, sugar, cotton yarn, coal briquettes, wheat, etc. However, most of these items did not show very rapid growth except perhaps wheat and coal briquettes. Table 6(b) shows major Indian imports from Bangladesh through LCSs, located in West Bengal. Out of the three major commodities exported by Bangladesh to India, two come entirely through land routes, namely, Hilsa and other fish and raw jute.11 Therefore, overland exports from India to Bangladesh are well diversified. With increase in exports, allLCSs across the India and Bangla-desh land border have experienced a spurt in traffic. In terms of overland trade value, Petrap-ole in road on and Ranaghat/Gede in rail carry bulk of India’s exports to Bangladesh. This lead us to select Petrapole being the busiest of all LCSs as the “best representative sample” to assess the transaction costs of India’s exports to Bangladesh in this study.3 State of Conditions of Border LCSs in West Bengal are the most important gateways for India’s trade with Bangladesh. Notable among these LCSs is Petrapole. As noted in Das and Pohit (2006), the prevailing condition of the infrastructure is unstable and miserably poor. Hence, analysis pertaining to transportation and cross border costs improved and integrated trading infrastructure, which is responsible for faster movement of goods and services across the countries. 2 Overland Trade between India and BangladeshEven though India and Bangladesh share a long international border and depend on overland transportation infrastructure in a major way for their bilateral trade, there is a clear absence of wide and strong links between the two countries, particularly in the railways sector. As noted in Table 4 (p 72), India’s trade with Bangladesh is mostly carried out overland, some of it being carried out by sea. Even though there has been deceleration, about 35 per cent of India’s merchandise exports to Bangladesh in 2003-04 still passed through Petrapole land customs station (LCS), thereby making it as one of the noted LCSs dealing with India’s overland trade with Bangladesh. Among sea routes, about 6.30 per cent of India’s total exports to Bangladesh are handled by the Jawaharlal Nehru port. In the railway sector, Ranaghat/Gede handled about 11.50 per cent of India’s total exports to Bangladesh in 2003-04, up from 5.20 per cent in 1996-97. 2.1 Land Border RoutesLand (border) routes are the most convenient and popular routes for trading between neighbouring countries – more so in case of countries with long borders like India and Bangladesh. The borderbetweenIndiaand Bangladesh is basically porous. At present, there are officially 35LCSs through which India’s trade with Bangladesh is carried out. Among these 35LCSs, Petrapole (in West Bengal) in the road sector and Gede (in West Bengal) in the railway sector are the two most noted LCSs, which together share about 48 per cent of India’s merchandise exports to Bangladesh (Table 4). If we consider India’s overland trade with Bangladesh through West Bengal, with about $808.80 million of exports and $ 56.50 million of imports in 2004-05, the Petrapole LCS occupies the top position in West Bengal (Table 5). There are some important LCSs such as Hilli, Mohedipur, Changrabanda and Singabad that are handlinga good amount of India’s overland trade with Bangladesh. However, there are half-a-dozen recognised overland border routes (in road sector) between India’s NER and Bangladesh. Dawki in Meghalaya is the oldest land custom station and mainly serves traffic in coal from theNER of India toBangladesh.10 2.2 Trade through Petrapole-BenapoleOf the road routes, the heaviest movement (in value terms) is via Petrapole (India) – Benapole (Bangladesh). Tables 6(a) and 6(b) provide the commodity composition of India’s overland exports to Bangladesh through land borders. Some of the important items, which have grown in India’s exports basket and are increasingly traded formally are onions and garlic, rice, cotton woven articles (code 5209), which includes denims, synthetic Table 5: India’s Exports and Imports to/from Bangladesh through LCSs in West Bengal in 2004-05($ million)LCSs ModeExportImportPetrapole Road8,08.8056.50Changrabanda Road 62.48 2.39Hilli Road1,41.590.14Mohedipur Road1,23.600.38Ghojadanga Road50.541.79Ranaghat/Gede Rail 194.15 0.00TT Shed** Rail 12.51 1.89Singabad Rail43.540.78Radhikapur Rail 10.940.00Total 1,448.1663.86*Considers only West Bengal corridors. **Located at Kolkata Port.Source: Chief Commission, Central Excise and Customs, Government of India, Kolkata.Table 6(a): India’s Top 10 Export Items to Bangladesh through Land Borders*LCSs Commodity 1996-97 2003-04 Change Share (%)** Hilli and Petrapole Onions and garlic 57.30 44.60 FallHilli and Petrapole Oranges – fresh and dried 93.40 12.40 FallHilli, Petrapole, Rice 22.50 43.90 Rise andRadhikapur Petrapole Synthetic organic colouring mat 100.00 100.00 No change Petrapole New pneumatic tyres 53.70 86.00 RisePetrapole Woven cotton$ 36.50 92.00 RisePetrapole Other articles of iron and steel 13.00 97.20 RisePetrapole Unwroughtaluminium88.0076.20FallPetrapole Radio receivers, video apparatus 95.00 97.00 RisePetrapole Chassis fitted with engine 99.50 95.30 Fall* Considers only West Bengal LCSs. Commodity-wise data not available for Ranaghat-Gede LCS, which also carries a good deal of border trade, especially cement, sugar, etc. ** Percentage of total exports. $ Represents 5209 code.Source: Calculated based on data provided by DGCIS, Kolkata.Table 6(b): India’s Overland Imports from Bangladesh through Land Borders*LCSs Commodity 1996-97 2003-04 Change Share (%)** Petrapole Hilsa and other fish 100.00 100.00 No changePetrapole Rawjute 100.00 100.00 Petrapole Betel nuts 0.00 100.00 Rise* Considers only West Bengal LCSs. Commodity-wise data not available for Ranaghat-Gede LCS, which also carries a good deal of border trade, especially cement, sugar, etc. ** Percentage of total exports. Source: Calculated based on data provided by DGCIS, Kolkata.

SPECIAL ARTICLEjuly 19, 2008 EPW Economic & Political Weekly74even empty small trucks parked alongside the roads, leaving less space for the vehicles to move on.Markets on Highways:In many places, there are some whole-sale markets for local agricultural products piled by the farmers as well as traders, completely occupying the main road. There is no separate designated space for markets. Conges-tion is so intense that no vehicle can pass through these stretches at one go. It takes about 15 minutes each to pass through many such junctions. It is difficult for traffic to move at these points and there is no (traffic) police to control anything. Railway Crossings: There are as many as five railway crossings in between Barasat and Petrapole with no flyovers at all, thereby causing long queue. As the frequency of trains between Kolkata (Sealdha) and Bongaon (the nearest railhead of Petrapole) is very high, the gates at each level crossing are closed very often for long periods, thus creating immense traffic congestion.The Jessore road passes through very congested towns like Barasat, Dutta Pukur, Ashoknagar, Habra and Bongaon on the way from Kolkata. Furthermore, hawkers in Habra and Bongaon and three railway crossings en route slow down the movement of trucks. Another major hurdle in transportation is the narrow Naobhanga Bridge, which is located 3 km before Petrapole. The bridge is so narrow that, at a time, only one truck can pass through. Moreover, heavy trucks with a carrying capacity of 15 to 18 tonnes or more cannot pass through this bridge due to its poor condition. If the shipment is of a higher capacity, it has to be reshipped in smaller trucks from Bongaon, incurring additional cost and time.Road traffic to Bangladesh via Petrapole converges at Bangaon, situated four kilometres from the international border at Petrapole. The access roads including the national highway to Bangaon are mostly narrow and for all practical purposes, single lane roads. At Bangaon trucks have to cross narrow roads passing through residential and market areas. Consequently, there is always heavy congestion of trucks in and around Bangaon and Petrapole. Quite often 1,400 to 1,500 trucks have been found waiting in the queue to enter Bangladesh.12 This congestion is perceived as an encroachment on civil amenities. In fact, the chaotic conditions prevailing have resulted in diversion of traffic to other land customs stations like Hilli, Mohedipur, Changra-bandha and to a newly opened land custom station at Bhojadanga – south of Petrapole. On an average, 400 trucks travel to Petrapole daily. According to the Bangladesh Land Port Authority,13 about 350 trucks enter Benapole from the Petrapole LCS every day (Table 8), which used to be approximately 100 trucks every day in 1990-91. However, adequate capacity to handle such huge movement of vehicles has not been created at the border resulting which managing the congestion at the border is out of control. Naturally, merchandise faces substantial loss of time and costs at the border.14 The delay takes place at the parking lot, in customs clearance and at the entry/exist point. It is mandatory for the trucks coming from Kolkata during daytime to park at Bongaon Municipality Parking, and times of one of the LCSs would provide a fair picture of the ground realities. 3.1 Kolkata-Petrapole The Petrapole LCS is located about 95 kilometres from Kolkata city. The commodities at are traded through the Petrapole LCS originate from all over India. Kolkata is the final transhipment area for most of these commodities and they are carried to the Petrapole border by trucks through national highway 35, formerly known as Jessore Road as it originates from Jessore in Bangladesh. The delay in this route is a normal phenomenon due to heavy traffic, poor physical conditions and narrow width of the road as well as encroachments. Above all, rampant rent seeking activities coupled with lack of transparent economic missions of the official administration is the most important barrier to prosperity through trade in this region. There are the following major external bottlenecks, which are making trade costly and time consuming.High Vehicle Density: The road from Kolkata to Petrapole that borders a stretch of about 95 km can hardly be called a highway, except a small portion of the distance, which may amount to only about 15-20 km. The entire stretch between Kolkata and Bangaon (NH 34 andNH 35) is highly congested, particularly the Kolkata- Barasat stretch (Table 7). The width of the road in many places is as narrow as any local road. Other than the marketplaces, the entire road from Barasat to Petrapole has lots of van rickshaws carrying passengers, vegetables, chickens and many such items. No vehicle can move at a speed more than 20-30 km per hour over this 95 km stretch. Commuters (exporters) have to face confrontation with moving cycles, rickshaws, motorcycles and other vehicles, which come from unknown directions. The road is also congested due to small trucks carrying vegetables and Table 7: Movement of Vehicles Per Day on National Highway 35* Distance (Km) Passenger Cars (No) Buses (No)Trucks (No) Density (Per Km)NH 34, Kolkata-Barasat 23 5,411 2,704 3,665 512NH 35, Barasat-Bangaon 60 1,567 401 1,212 53Average of the period January to November 2005.Source: National Highway Authority of India, Kolkata.Table 8: Cargo Movements from Petrapole to BenapoleYear Imports ClearedOut TotalTrucks Trucks (No) Tonnes Trucks (No) (No)1990-91 16,841119,308 19,288 36,1291991-92 19,568117,095 21,605 41,1731992-93 27,5211,75,770 29,448 56,9691993-94 33,2712,16,426 37,469 70,7401994-95 40,7222,73,539 44,093 84,8151995-96 41,2662,75,487 43,513 84,7791996-97 44,4822,95,253 46,232 90,7141997-98 46,3653,90,368 50,782 97,1471998-99 74,4387,64,150 87,159 1,61,5971999-00 47,5254,05,790 56,848 1,04,3732000-01 61,9895,73,592 73,070 1,35,0592001-02 67,4986,68,550 81,616 1,49,1142002-03 94,6958,58,694 98,594 1,93,2892003-04 65,7346,47,000 63,080 1,28,814Source: Padeco (2005).

P Q DM Pw + T1 Pw + T2 Q1 Q2 a b c d e

94

SPECIAL ARTICLEjuly 19, 2008 EPW Economic & Political Weekly78investment. The goods carried by road from India are subjected to transhipment at the border. Similarly, goods carried by rail are subjected to inland transhipment. In maritime transport, there are no direct sailings between the two countries. The tranship-ments at the LCSs impose serious impediments. In fact, they determine the level and efficiency of international trade between the two countries. The position is further compounded by the lack of harmonisation of technical standards for rolling stock and infrastructure, both road and rail. There exist severe transport and transaction cost barriers for effective cross border trade between India and Bangladesh. These two countries, along with other south Asian partners, should develop a regional transportation and transit system that offers efficient transportation options and low transaction costs that are competitive with those found elsewhere. As the “full life” of many new products becomes shorter and shorter with emerg-ing production networks across borders and the spatial distribu-tion of supply and demand points changes rapidly in such a system, what is transported how it is transported and to and from where it is transported are all rapidly changing. For admission to this dynamic global system, a region needs a transportation and transit system that offers an exporter short time spans between order and delivery and predictable and reliable deliveries. To plug into this wealth-creating machine, India and Bangladesh must develop a transportation and transit facilitation system that will greatly reduce current physical and non-physical barriers to transportation and transit by means of both physical infrastructure (such as multimodal corridors and terminals) and nonphysical infrastructure (reformed policies and procedures, regulations, and incentives for efficient transporta-tion and transit). India being large has a special role to play in deepening bilat-eral economic cooperation with Bangladesh through the trans-port infrastructure sector. First, India may invest in inland and border infrastructure as a response to serious bottlenecks taking place due to an expansion of the domestic private sector. This, however, would lead to a passive strategy of transport infrastruc-ture following private investment. Another option is that the governments of India and Bangladesh use transport infrastruc-ture as an engine for bilateral and regional development. This implies an active strategy where transport infrastructure is leading and inducing private investment. Although both approaches have some pros and cons, many countries have used the latter approach to attract private investments vis-à-vis regional development.Trade liberalisation is a necessary condition but not a sufficient one. To achieve any substantial progress in bilateral and regional trade among the countries in south Asia, the utmost priority should be given to developing infrastructure facilities. Added to this, complementary policy reform in the transport sector, accom-panied by improved procedural and operational efficiency, is essential to support trade liberalisation in south Asia. Therefore, a deeper bilateral economic cooperation between Bangladesh and India certainly has a great potential to enhance south Asian regional cooperation.Table 12: Transaction Time and Documentations on India’s Overland Exports to BangladeshParticulars Subramanian Das and Pohit De and Ghosh (1999) (2005) (2005) Year: 1998 Year: 2002 Year: 2005Border crossing delays (hrs)* 60 87 94Types of documents required at border (No) 29 NA 17Copies of documents required at border (No) 118 NA 67*Considers only time taken at Petrapole to clear goods, unloading at Benapole, and crossing the border after unloading at Benapole.SAMEEKSHA TRUST BOOKS1857Essays from Economic and Political WeeklyA compilation of essays that were first published in the EPW in a special issue in May 2007. Held together with an introduction by Sekhar Bandyopadhyay, the essays – that range in theme and subject from historiography and military engagements, to the dalit viranganas idealised in traditional songs and the “unconventional protagonists” in mutiny novels – converge on one common goal: to enrich the existing national debates on the 1857 Uprising.The volume has 18 essays by well known historians who include Biswamoy Pati, Dipesh Chakrabarty, Peter Robb and Michael Fisher.The articles are grouped under five sections:‘Then and Now’,‘Sepoys and Soldiers’,‘The Margins’,‘Fictional Representations’ and ‘The Arts and 1857’.Pp viii + 364 2008 Rs 295Available fromOrient Longman LtdMumbai Chennai New Delhi Kolkata Bangalore Bhubaneshwar Ernakulam Guwahati Jaipur LucknowPatna Chandigarh Hyderabad Contact: info@orientlongman.com

SPECIAL ARTICLEEconomic & Political Weekly EPW july 19, 200879Notes 1 Several studies show that there is considerable informal trading in south Asia, which has evolved due to several geopolitical and commercial reasons. See, for example, Chaud-hury (1995); Taneja (1999); Pohit and Taneja (2000). 2 SAFTA, an agreement between SAARC countries, signed during the 12th SAARC Summit in Islamabad in 2004, has come into force on January 1, 2006. It will be fully operational by 2016. SAFTA includes some 5,500 tariff lines, taking into account both agricultural (695) and industrial products. 3 According to the prime minister of India, quoted in theFinancial Express, December 2, 2005. 4 “Behind the border” issues were in the forefront of the 14th SAARC Summit, where heads of south Asian countries adopted a coordinated and focused commitment to resolve the physical and non-physical barriers to trade and agreed to put in place a SAARC regional multimodal transport system, for which the feasibility study done by Asian Development Bank [ADB 2006b]. Therefore, integration of trade and transportation networks has appeared as a priorityobjectiveof regional cooperation in south Asia. 5 This was an interim arrangement, which identi-fied the commodities to be traded and fixed a monetary ceiling for the export/import of each commodity with a view to achieving balanced trade. This was replaced by a new agreement in July 1973. The new agreement was amended in December 1974 to include a clause that bilateral trade between the two countries would be conducted in convertible currency effective January 1, 1975. The current agreement was signed on October 4, 1980 and has been extended for successive periods of three years. 6 ReportedinThe Hindu, September 18, 2007.7 Bilateral trade intensity indices between the two countries indicate that Bangladesh has offered not only a steady export market for almost all products of Indian origin over last 2.5decadesbut a very large one at that [Sikdar 2006]. 8 For a detailed overview of informal trade between India and Bangladesh, see ICSSR-NERC (2005). Also refer, Raychaudhuri (2005). 9 For example, refer De (2007a, 2007b, 2007c).10 According to chief commission, central excise and customs, government of India, Shillong, Megha-laya, India exported $ 12.30 million worth of goods to Bangladesh in 2004-05 through Dwaki, whereas the import from Bangladesh through Dwaki was negligible. There are also some LCSs in the NER, such as Borsora and Shella Bazar (both in Meghalaya), and Sutakandi and Ghasua-para (both in Assam) are increasingly handling India’s overland exports to Bangladesh through the NER.11 Another major item, namely, ammonia anhydrous or aqueous solution, is exported by Bangladesh to India by sea. 12 Quoted in ADB (2006a).13 Quoted in Padeco (2005).14 We have interviewed here 12 truck drivers and 10 trading/clearing companies. Their responses did not vary much except for differences in conceptual understanding, languages and types of goods they are dealing with. It takes about four odd days for the loaded trucks to wait into the warehouses under normal days in the week before being able to come into the queue of the border. If it happens to be around any Friday (the day when business remains closed in Bangladesh), it may take even longer. But most companies in India are of the opinion that the speed of clearance is slower on the Bangladesh side compared to the Indian side.15 Some are also of the opinion that the same is true in Indian side because of high pressure of “paper works” and no technological facility. Some even suggested introducing mechanised and digital system of documentation on both sides of the border. A representative of the Transport Corporation of India informed us that there should be two such adjacent entry and exit points for fastermovementoftraffic.16 Surveyed 28 exporters, traders and transporters in Kolkata, Petrapole and Delhi.17These five phases more distinctly exemplify the three phases covered in Das and Pohit (2006) during the period October to November 2005.18Refer Subramanian (1999), Pohit and Taneja (2000), Subramanian and Arnold (2001) and Das and Pohit (2006), which were attempted to identify the relevant cost in terms of time and money involved in trading of commodities between India and Bangladesh. For a comparative review of all these studies, refer Das and Pohit (2005). To be specific, all these studies in generaltried to identify loss of time in the different stages of trade transaction such as (i) securing export licence; (ii) procedural delays at the customs; (iii) processing cost at the banks; and (iv) movement of merchandise. However, Pohit and Taneja (2000), Subramanian and Arnold (2001) fall short of identifying all the components that impinge trade, which covered by Das and Pohit (2006). Pohit and Taneja (2000), and Subramanian and Arnold (2001) have not analysed separately the loss of time at parking, crossing of border, unloading at Benapole and crossing of border while return-ing. So, both these studies have underestimated the costs. In this context, Das and Pohit(2006)is an improvement over the other two.19Several studies show that reducing border delays is critical for trade liberalisation to have a positive impact on welfare [Cudmore and Whalley 2003].20 Indian customs system has undergone significant reforms in recent years, which include, among others, the introduction of (i) simplified administrative document, (ii) computerisation of documents by connecting all custom points through EDI, (iii) pre-shipment inspection for all non-government imports, (iv) simplified tariff-based on the harmonised code (8 digit), and (v) red and green channels in major airports, seaports and ICDs [Government of India 2006].21 It is true that improvements in customs proce-dures have brought a reduction in the amount of informal payments for clearing cargo. Despite so, underhand transaction at border to clear exports is substantially high. The actual amount is negotiated between the shippers and the customs agent with both agreeing on the amount per shipment that will be reimbursed without an invoice and is therefore available to pay customs officials for expediting cargo clearance. 22 This process reached a certain level of absurdity by requiring that for multimodal movements by ocean transport, both the forwarder’s house bill and marine bill of lading must be negotiatable implying that there are two documents of owner- ship for the same cargo. ReferencesArnold, J (2004): Bangladesh Logistics and Trade Facilitation, World Bank, Washington DC.Asian Development Bank (ADB) (2006a):South Asia Economic Report, Manila. – (2006b):SAARC Regional Multimodal Transport Study, New Delhi.Chacholiades, M (1990): International Economics, McGraw-Hill, New York.Chaudhary, S K (1995): ‘Cross-Border Trade between India and Bangladesh’, Working Paper 58, National Council of Applied Economic Research (NCAER), New Delhi. Cudmore, E and W John (2003): ‘Border Delays and Trade Liberalisation’, Working Paper W9485, National Bureau of Economic Research (NBER), Cambridge.Das, S and S Pohit (2006): ‘Quantifying Transport, Regulatory and Other Costs of Indian Overland Exports to Bangladesh’,The World Economy, Vol 29, No 9, pp 1227-42. De, P (2005): ‘Cooperation in Infrastructure Sector: A South Asian Perspective’,Contemporary South Asia, Vol 14, No 3, pp 4-28. – (2007a): ‘Impact of Trade Costs on Trade: Empiri-cal Evidence from Asian Countries’, ARTNeT Working Paper No 27, Trade and Investment Division, UNESCAP, Bangkok. – (2007b): Empirical Estimates of Transport Costs: Option for Enhancing Asia’s Trade’, paper presented at the ADBI conference on Role of Infra-structure in Reducing Trade Costs, organised by the Asian Development Bank Institute (ADBI), June 25-26, Tokyo.–(2007c): ‘Role of Infrastructure in Reducing Trade Transportation Costs: Empirical Evidence from South Asia’, paper presented at the ADBI conference on Role of Infrastructure in Reduc-ing Trade Costs, organised by the Asian Development Bank Institute (ADBI), June 25-26, Tokyo.De, P and B Bhattacharyay (2007): ‘Prospects of India-Bangladesh Bilateral Economic Cooperation: Implications for South Asian Regional Coopera-tion’, Working Paper, Asian Development Bank Institute (ADBI), Tokyo.De, P and B Ghosh (2001): ‘Transport Infrastructure and Economic Performance of Bangladesh and Indian Bordering States’,BIISS Journal, Vol 22, No 4, pp 414-62. Government of India (2006):Annual Report, Ministry of Commerce and Industry, New Delhi. Indian Council of Social Science Research – North Eastern Regional Council (ICSSR-NERC) (2005): Conference proceedings of international seminar on ‘Indo-Bangladesh Border Trade: Status and Prospects’, organised by the ICSSR-NERC, July 12-13, Shillong.Padeco (2005):SASEC Subregional Corridor Efficiency Study, Vols 1-4, Tokyo.Pohit, S and N Taneja (2000): ‘India’s Informal Trade with Bangladesh and Nepal: A Qualitative Assess-ment’, Working Paper 58, Indian Council for Research on International Economic Relations, New Delhi.Raychaudhuri, A (2005): ‘India Bangladesh Border Trade: Some Analytical Issues’, conference proceedings of international seminar on Indo-Bangladesh Border Trade: Status and Prospects, organised by the ICSSR-NERC, July 12-13, Shillong.SAARC Secretariat (2006): SAARC Regional Poverty Profile 2005, Kathmandu.Sikdar, C (2006): ‘Prospects of Bilateral Trade between India and Bangladesh’,Foreign Trade Review, Vol 41, No 1, pp 27-45.Subramanian, U (1999): ‘South Asia Transport: Issues and Options’,paper presented at the international workshop on Regional Initiative on Transport Integration of South Asia Region, organised by UNESCAP, April 19-21, Bangkok.Subramanian, U and J Arnold (2001): Forging Subregional Links in Transportation and Logistics in South Asia, World Bank, Washington DC. Taneja, N (1999): ‘Informal Trade in the SAARC Region’, Working Paper 47, Indian Council for Research on International Economic Relations (ICRIER), New Delhi. – (2007): ‘India’s Exports to Pakistan: Transaction Cost Analysis’,Economic & Political Weekly, Vol 42, No 2, pp 96-99.