Bangladesh cancels contract with Indian firm: How this move will hurt Dhaka

Bangladesh has cancelled a Rs 180 crore contract with an Indian firm.

According to several media reports, Dhaka has cancelled the tender with a Kolkata-based defence company to build an ocean-going tug for its navy.

The development points to yet another sign of worsening ties between the two countries since the ouster of Sheikh Hasina in August 2024.

The new interim government being led by Muhammad Yunus, meanwhile, has moved closer to China.

It comes after India on Saturday imposing port restrictions on the import of certain goods such as readymade garments and processed food items from Bangladesh.

That came after Yunus made a controversial statement in China that India’s seven northeastern states, which share a nearly 1,600 km border with Bangladesh, are landlocked and have no way to reach the ocean except through his country.

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Yunus called Bangladesh the “guardian of the ocean” in the region.

His remarks did not go down well in New Delhi.

But what happened? Will this hurt Bangladesh more than India?

Let’s take a closer look

What happened?

As per India Today, Bangladesh cancelled the $21 million order (Rs 180 crore) with Garden Reach Shipbuilders & Engineers Ltd (GRSE).

GRSE is run by the ministry of defence.

As for NDTV Profit, it is a public sector firm which bills constructs and repairs vessels.

It counts the Indian Navy and Coast Guard among its clients.

“We wish to inform you that the Government of the People’s Republic of Bangladesh has cancelled the order,” GRSE told the stock exchange.

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According to Hindu Business Line, GSRE said the order stands cancelled after “mutual discussions.”

The GSRE had been given the contract to build an 800-tonne advanced ocean-going tug, as per The Times of India.

As per PSUWatch.com, the tug was to be 61 metres long and 15.80 metres wide with a draught of 4.80 metres and a depth of 6.80 metres.

It was to be equipped with a high bollard pull capacity—76 tons ahead and 50 tons astern—and a speed of at least 13 knots.

The vessel was intended to tow vessels over long distances, provide berthing assistance, conduct rescue missions, carry out salvage operations, firefighting, and limited pollution control on the open seas.

The deal was signed between GSRE representatives and senior officials of the Bangladesh’s Navy in Dhaka in July 2024.

It came in the backdrop of Navy chief Admiral Dinesh K Tripathi visiting Bangladesh to strengthen defence ties.

It was also the first major deal inked under the $500-million line of credit for defence purchases extended by New Delhi to Dhaka that was operationalised in 2023.

Bangladesh’s other infrastructure projects are also being built with lines of credit from India – which had heavily invested in Bangladesh under Hasina.

As per ETV Bharat, India in the past eight years had extended Bangladesh three lines of credit worth around $8 billion.

This was done for infrastructure projects such as roads, railways, shipping and ports.

India had also been giving Bangladesh grant assistance for projects such as the Akhaura-Agartala rail link, the dredging of inland waterways in Bangladesh and the construction of the India-Bangladesh Friendship Pipeline.

India had also invested over $50 million in 93 high-impact community development projects (HICDPs) across Bangladesh.

These include building of student hostels, academic buildings, skill development and training institutions, cultural centres, and orphanages.

However, it is clear that much has changed since Hasina’s ouster.

Which is only further highlighted by a recent remark from Bangladesh Industrial Development Authority chairman Ashik Chowdhury.

NDTV quoted Chowdhury as saying that there is no Indian Economic Zone in Bangladesh’s Mirsarai Economic Zone.

The idea of having one exists only on “pen and paper”, Chowdhury said.

“What is usually said about the Indian Economic Zone, that is only an economic zone on pen and paper. This was there in the original master plan but there was no progress or significant work done on this. The area marked in the master plan is a forest area. Practically, there is no progress or set up there, so there is a lot of misconception about this in the public domain. I had clarified earlier and I am clarifying again that there is no activity that has happened there,” Chowdhury added.

According to the outlet, India in 2020 had approved $115 million in a line of credit to invest in an Indian Economic Zone in Chattogram district’s Mirsarai.

The project aimed to build infrastructure on 900 acres of land in the Bangabandhu Sheikh Mujib Industrial City.

Will it hurt Bangladesh more than India?

Experts say Bangladesh’s actions are only likely to backfire and wind up hurting itself more than  India.

Ajay Srivastava, founder of the Global Trade Research Initiative (GTRI), speaking to Business Today about Bangladesh imposing trade restrictions on India last month, said, “Bangladesh is inflicting damage on themselves. They cannot do anything to India."

“Bangladesh was diversifying beyond garments into sectors like leather. But since the last power shake-up, religious elements have taken over. They’ve taken a hardline stance against India,” Srivastava added. “Without any provocation, they started blocking Indian goods—rice, yarn, even FMCG.”

Srivastava said Bangladesh no longer being classified as a Least Developed Country (LDC) impacts it.

“India had given them zero-duty access under LDC norms. That needs to be reviewed now, just like Europe and the US are doing.”

“They are under serious pressure. The LDC graduation means they lose access, and their own policies are making things worse. They’re damaging themselves,” he added.

Bangladesh, which is dealing with a struggling economy and nearly double-digit inflation, could look to the International Monetary Fund (IMF) for further financing.

Indeed, the IMF Just last week confirmed that Bangladesh had sought another $762 million in financing.

If approved this would bring the IMF’s total credit to Bangladesh to over $4 billion.

The IMF already plans to give Bangladesh $1.3 billion in June.

However, it must be noted that the IMF charges market-linked interest rates for its loans.

These loans come with strings attached – as Pakistan has recently found out during difficult and protracted negotiations with the IMF.

Bangladesh could also look to China finance their infrastructure projects.

As per The Wire, China has given Bangladesh $7.5 billion in loans since 1975.

Beijing is Dhaka’s fourth-biggest creditor.

In fact, Bangladesh recently had to ask China to reduce interest rates and extend repayment periods on loans.

Beijing in January agreed to extend the repayment period for loans from Dhaka, as per The Wire.

Beijing had also said it would consider lowing the interest rate on the loans – as requested by Dhaka.

This came in the backdrop of Bangladesh’s Foreign Adviser Touhid Hossain meeting Chinese Foreign Minister Wang Yi during a four-day visit to China.

However, Bangladesh ought to be wary of falling into China’s debt trap – for which they need look no further than Sri Lanka and Pakistan.

In short, Bangladesh has fewer options than it thinks.

With inputs from agencies