Indian companies closely monitoring Bangladesh situation, concerned by political uncertainty

Mumbai: Indian companies having operations in Bangladesh are carefully analysing the situation as demand has come to a halt following the student-led nationwide protest that toppled the 15-year rule of former Prime Minister Sheikh Hasina.

“We are evaluating the situation and will take a call if the uncertainty continues. There has barely been any demand in the last 2-3 weeks since the protests gathered momentum,” said a top executive of a top Indian automobile company.

He added that auto sales in the nation were already under pressure due to a lack of economic growth and the current protests had made it worse, including temporary shutdowns of many factories.

A Dabur spokesperson said they are closely monitoring the developments in Bangladesh though it accounts for less than 1% of Dabur's consolidated revenue and less than 0.5% of its consolidated net profit. Auto major TVS Motor said that though Bangladesh contributes to a minor share of its imports, sales in that country are facing challenges due to the ongoing protests.

Shares of some of India’s top companies such as Marico, Emami, VIP and Pearl Global Industries which have exposure to Bangladesh are also under selling pressure. Shares of Marico plunged 6.5% on Tuesday to Rs 628 apiece.

For FMCG major Marico, 11% of revenue comes from Bangladesh. Emami's operations in Bangladesh are substantial as 6% of its total revenue comes from here. Top luggage company VIP Industries sources 30–35% of its production capacity from Bangladesh, an integral part of its supply chain.

Pearl Global Industries, which derives around one-fourth of its revenue from Bangladesh, said that its facilities there are temporarily non-operational due to the curfew.

Businesses have been hit by the protests in Bangladesh

Vikram Kasat, Head of Advisory at PL Capital, said that the turmoil in Bangladesh is indeed worrying. “While we hope for an amicable resolution between the government and students, we are concerned about the Indian corporates operating in Bangladesh. Some of the notable names that come to mind are VIP, Emami, Marico, Dabur, Asian Paints, Pidilite, Tata Motors, and Hero MotoCorp, all of whom have significant operations there,” added Kasat.

Adani Group company Adani Power, which supplies 1,495 MW of electricity to Bangladesh from its Godda (Jharkhand) plant, said it continues to supply electricity to the country.

“Adani Power has a power purchase agreement with the Bangladesh power distribution utility, namely Bangladesh Power Development Board (BPDB), to meet their power requirement. In its normal course of business, BPDB is scheduling the power supply to meet their demand and as per that schedule, Adani Power continues to supply power to the Bangladesh power utility without any disruption. Going forward too, we will remain guided by BPDB’s schedule and as per the provisions of the PPA between the two utilities,” said an Adani Power spokesperson.

Arun Kumar Garodia, chairman of Engineering Export Promotion Council, said the ongoing political uncertainty may further worsen the situation and impact engineering exports to the neighbouring country. “The political developments in Bangladesh are a significant concern for Indian engineering exporters. As one of the top destinations for Indian engineering products and our largest trading partner in South Asia, stability in Bangladesh is crucial for maintaining and expanding trade relations,” added Garodia.

Think tank Global Trade Research Initiative (GTRI) said that during the fiscal year 2022, India's exports to Bangladesh amounted to $16.2 billion. However, by FY2023, these exports had decreased to $12.2 billion and further declined to $11.1 billion in FY2024. This represents a significant drop of 31.5% in exports from FY2022 to FY2024.

On the other hand, India's imports from Bangladesh have been relatively stable, starting at $1.9 billion in FY2022 and slightly increasing to $2.0 billion in FY2023, before slightly decreasing to $1.8 billion in FY2024. This marks a modest decrease of 5.3% in imports over the same period.

“The key reason for declining trade is Bangladesh's severe dollar shortage, which has limited its ability to import goods, including those from India. The rising inflation in the country has also reduced domestic demand, leading to lower consumption of both local and imported products,” said GTRI.