Bilateral Trade through Official Channel between India and Bangladesh: An Analysis with the Use of Time Series Forecasting Models

1.IntroductionTrade between India and Bangladesh has a long history. Besides bilateral trade with India, informal trade also plays an important role in Bangladesh. Trade between these two countries is not only creating value but acting as a value chain, which is a corner stone for improving bilateral relationships. However, given the geographical proximity, relationship with India is historical, cultural, social and cordial to have any significant impact on the two economies. Therefore increasing bilateral trade between the two neighbouring countries is very essential for employment generation, economic development and growth. Furthermore, according to Ankit(2015) India's foreign policy would appear to the Commonwealth Relations Office to be 'a picture not only of an ever enlarging sphere of regional co-operation but also of expanding Indian ambitions' is somewhat not valid in this century . Both the countries should maintain diplomatic relationship not only for geopolitical reasons to mutually benefit from each other to ensure sustainable economic development and growth through South Asian Association of Preferential Trade Agreements (SAPTA)and the Bay of Bengal initiative for Multi-Sectorial Technical and Economic Cooperation (BIMSTEC),but also to fight against global and regional terrorism, irradiate poverty, and improve welfare for millions. There are three factors that are identified in case of Bangladesh, which have a negative influence for encouraging trade: ease of doing business, unrecorded informal trade and high transaction cost of engaging in trade. (1) Ease of Doing Business: 'Ease of Doing Business Index (EDBI) for Bangladesh in 2014 was last measured at 173 and for India 142 out of 189 countries [see World Bank, (2014)]. As such Bangladesh still has a long way to go for further development of easing business procedure, which is to provide business friendly environment in this competitive global state of the 21stcentury. Likewise India should also reduce its protectionist trade policies between the South Asian nations. (2) Informal Trade: World Bank (2015) stated that since the independence in December 1971, there has been a substantial increase in informal unrecorded trade across the India-Bangladesh land borders, and a number of studies both in Bangladesh and in India have dealt with different aspects of it. (3) Transaction Cost: The trade diverted through the formal channels provide customs revenue, and this would be higher if administrative and other reforms reduce the scope for corrupt practices. Better infrastructure, faster clearance times and reduced transaction costs would also improve the prospects of Bangladesh exporters finding niche market in India, especially if they rely on importing inputs from India, where there is two way border crossing for trade [see World Bank (2015)]. Key factors that unite Bangladesh and India as identified by Government of India (2013) are the following:* Both the countries share a common heritage- language, civilisation, colonial history, social and, economic history. * India and Bangladesh have common interest and share a common heritage for music, classical dance, literature, poetry and the creative arts. * With Bangladesh, India shares not only a common history of struggle for freedom and liberation but also enduring feelings of both fraternal as well as family ties. * India played a major role in emergence of Independent Bangladesh during the 1971 war, and it was also the first country to recognize Bangladesh as a separate independent nation. * There have been major issues such as illegal migration, border, water sharing disputes, Moore Island, which have had a negative impact on bilateral trade in the recent years.Ahmed(2015) argued that the Indian Prime Minister Narendra Modi visited Bangladesh in June, 2015 for a mere 36 hours, but left an impact, big enough to wipe away mistrust that had crept in the Indo-Bangladesh relationship over the decades. …