Will Narendra Modi's $2 billion loan to Bangladesh be a setback for China?

Prime Minister Narendra Modi has come up with a clever and unexpected move of extending a new $2 billion line of credit to Bangladesh. It will make China sit up and ponder deeper over its chequebook diplomacy. It will also send a message to smaller neighbours like Maldives which is playing a teasing game with India and refusing to free former president Mohammed Nasheed.

 Will Narendra Modis Prime Minister Narendra Modi. Image courtesy PIB billion loan to Bangladesh be a setback for China?

Prime Minister Narendra Modi. Image courtesy PIB

It is unexpected because the first line of credit of $1 billion extended by India to Bangladesh in 2010 is still not fully exhausted, though Dhaka had been clamouring for it for some time. The small remainder of the previous $1 billion line of credit should be exhausted in a few weeks. Moreover, the Bangladeshis were expecting another line of credit of an equal amount but Modi has done a Santa for them.

It is clever because both domestic politics and international strategic currents must have been at the back of his mind before Modi came up with his surprise announcement of $2 billion line of credit to Bangladesh.

Domestically, the Modi move is aimed at showing to the Congress party that he can do much more when it comes to collaborating closely with India’s most important neighbor Bangladesh with which India shares its longest boundary (4,096 kilometers). Thus he has exactly doubled the amount. Though Modi may be criticized for his munificence by the opposition and even allies like Shiv Sena, but the fact remains that he would bowl over Bangladeshis completely with his chequebook coup.

Internationally, the move is all set to make India’s immediate neighbours sit back and mull over their strategic options vis-a-vis China. From Maldives to Myanmar, from Afghanistan to Nepal the Indian neighbours would now be looking at India with much more respect – and expectations. Even countries like Vietnam, which was recently given yet another line of credit of $100 million (fourth so far), would be impressed with India’s pro-active diplomacy.

A $2 billion line of credit is the biggest India has so far extended to any country and Bangladesh is definitely an ideal choice.

PM Modi's economic aid diplomacy to its contiguous neighbours acquires all the more importance considering the fact that China has embarked upon its super ambitious Silk Route initiative going through some 50 countries and over $50 billion Chinese funding is on offer.

Apart from this, PM Modi’s ongoing Bangladesh will be historic for another reason as he and his Bangladesh counterpart Sheikh Hasina today witnessed the exchange of instrument of ratification of the Land Boundary Agreement with West Bengal Chief Minister Mamata Banerjee also present. This is the first time since the birth of Bangladesh in 1971 that the two neighbours have completely resolved their boundary dispute – both land and maritime.

Now with the boundary dispute settled completely, India and Bangladesh can concentrate on improving their bilateral relations for mutual and regional benefits. The two stand to gain not only in terms of greater people to people integration but also in boosting bilateral trade which is grossly in favour of India at present. Of the $6.5 billion annual trade between India and Bangladesh, the Bangladeshi exports amount to just half a billion dollars, the rest being Indian exports to Bangladesh.

Increasing number of accords on land transit and opening up of new bus and rail services between India and Bangladesh will ensure that their bilateral trade gallops and Bangladesh has a solid chance of giving a substantial boost to its exports to India.

Most of the 22 bilateral agreements signed today are aimed at boosting trade and transport links.

Significantly, major Indian corporate entities like Reliance Power and Adani group signed agreements with Bangladesh state-run agency to invest around $5 billion (Rs 32,000 crore) in Bangladesh’s power sector. The Indian investment will help Bangladesh to generate 4600 MW of power in near future.

Another important takeaway of PM Modi's Bangladesh visit is in the field of security and counter-terrorism. The Bangladeshi side has pledged zero tolerance for terrorism and has already walked its talk for the last six and a half years since Sheikh Hasina took over the reins of the country. This is a clear message to Pakistan.

PM Modi’s Bangladesh trip has thus not just taken Indo-Bangladesh relations to a new level. The solid support pledged by Sheikh Hasina in areas of security and terrorism means that India is now more secure from terror attacks.

Pakistan needs to learn that Bangladesh is no longer available for planning, choreographing and launching vicious terror attacks on India from Bangladeshi soil and running fake Indian currency note rackets. If Pakistan does not make amends, other Saarc nations will gradually cooperate with India under the sub-regional format of BBIN (Bangladesh, Bhutan, India and Nepal).

Bangladesh has shown the way already

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Updated Date: Jun 07, 2015 12:40:34 IST