Allowing Transit Facility to India

1. Allowing Transit Facility to India By Professor A. R. Bhuyan Organized by Islamic Economics Research Bureau

2. Introduction • Instances of transit of traded goods between two trading partners through territories of third countries are very common. • Transit facility between BD and India existed in rail and waterways till the outbreak of the 1965 war. After 1971, transit facilities through waterways were reintroduced, which exist till today. • SAFTA treaty 2004 provides for transit facilities in all modes of transport, rail, water, air or road by all SAARC countries. • The proposal for allowing transit facility to India, launched in the mid-1990s, drew instant reactions in Bangladesh.

3. Introduction Contd.……..01 • The issue at hand is not that of trade between Bangladesh and India, but that of movements of goods from one part of India to another part of that same country through the territory of BD. • The issue is hotly debated. Arguments for or against the proposal have been put forward regarding its costs and benefits. • Most such views, for or against, appear conjectural, and are not based on any serious study or sound economic reasoning. • This paper opens up the issue, presents some basic facts, and attempts a qualitative assessment of the opportunities and disadvantages for BD. Any quantitative estimate made here is highly tentative. • More serious study will be needed to quantify the benefits and costs for both the two countries.

4. Introduction Contd……….02 The Reasons why transit is an important issue: • BD is located between the western parts of India and its Eastern and North Eastern States, physically separating the two parts of India. • Because of this geographical separation, transportation between the two parts of India takes place by long-winding railways and hazardous mountainous roads along the Shiliguri corridor, causing huge cost to the Indian economy in terms of time and resources. • Shiliguri Corridor (Chicken Neck) is about 17 miles connecting New Jalpaiguri in the West and Kuchbihar in the East.

5. Introduction Contd……..03 What We Need to know about Transit: • The existing road infrastructure in Bangladesh and whether it will permit transit facility • The cost of road development and maintenance • The required security measures and their costs • Convenient points/routes through which transit will be allowed • The items of cargo that can be legally moved • What type of fees can be charged for transit • What methods/procedures are followed by other countries in matters of transit • Possibilities of using alternative modes, such as rail or IWT, or a combination of road and rail, or rail and IWT, or all three transport modes.

6. Concepts of Transit, Corridor Use, and Transshipment • Transit is defined as “a passage through or across”. In international trade, it means that goods destined from one country to another country entail transit through a third country or more countries. Ex: BD to Bhutan/Nepal via India. The two governing international transit conventions are: Barcelona Transit Convention, 1921 and the New York Transit Convention, 1965. • “Corridor Use” has a distinctive feature vis-à-vis transit. The corridor is defined “as a strip of land forming a passage way between two otherwise separated parts of a country”. Ex: from Western parts of India to its Eastern parts through Bangladesh. • Corridor use refers to the use of a particular passage unlike transit, which does not restrict itself to a single or a particular land strip of a country.

7. Concepts of Transit, Corridor Use, and Transshipment Contd……..01 • In both “transit” and “Corridor Use”, goods are moved by the first country’s own transport vehicle or carrier. • Transshipment relates to transfer of cargo from one carrier to another. These carriers may belong to the country which transships the cargo. Ex: Indian cargo enters Benapole, is unloaded there and loaded in a BD vehicle, then unloaded at Tamabil (Meghalaya Border) or Akhaura (Agartala Border) and reloaded in Indian carriers.

8. Bangladesh Experience with Transit (Early Periods) • Transit through waterways: British period (since 1847)- Water transport directly carried goods from Assam to West Bengal. • Pakistan period (mid-1950s to 1965): Three Routes (under Protocol on Inland Water Transit and Trade) • Dhubri (Assam)-Chilmari-Goalondo-Chandpur-Narayangonj-Bhairab Bazar- Chhatak or Zakiganj Border of India (Assam). • Dhubri-Chilmari-Chandpur-Barisal-Mollarhat-Khulna-Bihari Canal (India) • Godagari (Rajshahi)-Goalondo. From there one sub-route is to Dhubri, and another sub-route is via Chandpur to Chhatak or Zakiganj Border of Assam.

9. Bangladesh’s Experience with Transit since Independence • The old Protocal was revived on 28 March 1972, which allowed transit transportation on 4 routes (two way traffic): • Calcutta-Haldia-Raimongal-Chalna-Khulna-Barisal-Nandibazar-Chandpur-Aricha-Sirajganj-Bahadurabad-Chilmari-Dhubri. • Calcutta-Haldia-Raimongal-Mongla-Kaukhali_Barisal-Nandibazar-Chandpur-Narayanganj-Bhairab Bazar-Ajmiriganj-Markuli-Sherpur-Fenchuganj-Zakiganj-Karimganj. • Godagori (Rajshahi)-Dhulian • Karimganj-Zakiganj-Fenchuganj-Sherpur-Markuli-Ajmiriganj-Bhairab Bazar-Chandpur-Aricha-Sirajgonj-Bahadurabad-Chilmari-Dhubri. • Transit declined to a trickle because of lack of round-the-year navigation as well as absence of night navigation. Benefit accrued to BD in revenue was small. • Transit by Rail: Rail link between Chittagong and Assam as well as between Calcutta Port and Assam via East Bengal was discontinued as a result of the partition of India in 1947.

10. Determining India’s Demand for Transit through Bangladesh • Presumably, a major portion of goods, not all, currently transported from Western parts of India through Shiliguri by road and rail will be transited through BD. • At present about 4 million MT of goods are transported by rail, and about 10 million MT of goods are transported by road through Shiliguri. • Assam-bound Cargo originating from Uttar Pradesh, Rajasthan, Delhi, Punjab, Haryana and other northern states of India will be costly to transit through BD. Hence only a portion of this traffic may be diverted through BD.

11. Determining India’s Demand for Transit through Bangladesh Cotd……..01 • Mostly, road transport is used for moving goods from Shiliguri through Assam to other sister states- Arunachal Pradesh, Manipur, Nagaland, Meghalaya, Tripura and Mizuram- because these states, other than Tripura (45 km) and Arunachal Pradesh (25 km) have no rail network. • Goods originating in West Bengal, Orissa, Bihar, Maharastra, Madras and other southern states of India destined to the Eastern and N.E. Indian states may be more economical to transit through BD. • From Shiliguri, rail transport carries goods to different parts of Assam. • The rail-transported goods may not be transited through BD.

12. How much cargo India might Transit through BD? • The potential volume of transit is 10 million MT- which is currently transported only by road from West Bengal and Southern parts of India. • This maximum potential of 10 million MT may not, however, be realized immediately. Hesitation to send consignments along new routes, uncertainty etc. may cause low volumes to be transited at the initial stage. • The hunch among the Indian traders is that only 80% of the current goods traffic across Shiliguri, or 8 million MT, may be transited every year.

13. What Types of Commodities are Likely to be Transited? • Verification of demand in the NE Indian states for goods of Western Indian origin and vice versa, and physical checks at the corridor indicates the following: • To Eastern and NE India- rice, atta and moida, motor vehicles including motor parts, chassis, LPG, diesel engine, pipe and pipe fittings, glass wares, electrical goods and appliances, G. C.sheets, pump sets, plastic goods, machinery and parts, chemicals, powdered milk, medicine, biscuits, cosmetics, cycles, cycle tyre and tubes, autorickshaw, marbles and tiles, two wheelers, cement, crockery, vanaspati, agarbatti, acrylic yarn, pesticide, agricultural implements, T.V., refrigerator, air-conditioners, clock, paints, battery, soft drink, newsprint, mustard oil, sanitary works etc. • From Eastern and NE states- mainly coal and coke, vinegar, plywood, LPG, bamboo and papers. • Of the total flow of goods between them, inflows to Eastern and NE states from the rest of India are 60 percent, which means that the reverse flow constitutes the remaining 40 percent.

14. Banapole – Petrapole Boder Rohanpur – Sindbad Border Hilli – Balurghat Border Banglabandh – Phulbari Border Tamabil – Meghalaya Border Akhaura – Agartala Border Chittagong – Belonia Border Possible Entry and Exit Points in Bangladesh along Land Routes for Transit of Indian Goods. Western Side Eastern Side

15. Possible Transit Routes * From Indian point of view, Benapole – Tamabil and Benapole – Akhaura routes may be viable.

16. Cost of Transit through Bangladesh • Because of different origins and destinations of cargo moving through Shiliguri, the transport cost is difficult to assess. • Information supplied by the Federation of Industries of North Eastern Region (FINER) a decade ago shows that transport cost in medium trucks (15.6 tons) per ton-km from Calcutta to NE states was Re 0.25 by water, Re 0.85 by rail, and Rs. 1.57 by road (in BDT, 0.30, 1.02, 1.88, respectively). • Transport cost per ton- km along the possible land routes through Bangladesh was Tk. 1.19, which is 37% lower than the cost of transport through Shiliguri. • These costs include only trucking cost (freight, toll, fees and ancillary charges), not other costs such as insurance, loading and unloading, cost of fuels, lubricants, spare parts, and repairs).

17. Comparison of Cost of Transiting through BD and Transporting through Shiliguri • India will save 37% of the costs if the goods are transited through BD. • There is also a significant saving in time. • A previous slide shows that the length of convenient routes varies from roughly 400 km to 690 km. within Bangladesh. From the exit points in the Eastern border of BD, the destinations are not very far. • Assam, Meghalaya, Mizoram and Tripura have common borders with BD. Other states- Monipur and Nagaland – with the exception of Arunachal Pradesh are in the proximity of 100 km. • On the other hand, goods flowing through Shiliguri will have to traverse more than 500 km after Shiliguri Corridor. • Thus India will gain in terms of transport cost as well as an enormous reduction in time needed to reach the intended destinations.

18. Present Volume of Cargo Traffic in Bangladesh Routes • The estimation of the number of vehicles and the volume of goods moving along the 8 possible routes in BD is difficult. • Goods from Benapole, Hili, Rohanpur and Banglabadh come to Dhaka first and then move to other destinations. • Similarly goods from Chittagong, Sylhet and other Eastern Districts come to Dhaka and subsequently move to other destinations. • Movement of trucks from border to border is relatively very small.

19. Road Maintenance after Transit • RHD sources say that the possible routes of transit of Indian goods are highly underutilized. The condition of roads is good and they may bear significantly higher load and may also accommodate 2-3 fold trucks without any inconvenience or damages to existing roads. Currently, on average, about 750 trucks ply on these roads every day. • A transit arrangement will not require any immediate changes in the road infrastructure. No new road will need to be built. • The most important requirement will be for adequate maintenance and rehabilitation of the relevant roads. • With subsequent increases in transit traffic, the maintenance and rehabilitation works will need to be increased. Costs will also rise accordingly.

20. Maintenance and Rehabilitation Costs after Transit • As said before, the potential annual transit traffic at the initial phase could be 8 million MT. For this quantity of goods to be moved annually, roughly 1500 trucks of average capacity of 15 MT will need to ply every day. • Including the domestic traffic of 750 trucks, total vehicular traffic in these routes will be 2250 trucks per day, i.e. 3 times the current traffic. • While with a doubling of traffic, the maintenance cost will not rise very substantially, according to HRD’s Highway Development and Maintenance (HDM) model, the cost of maintenance may go up by about 30-42 percent it the truck traffic is trebled.

21. Maintenance and Rehabilitation Costs after Transit Contd………01 • In absolute terms, for the routes likely to be used to allow transit, the maintenance cost could be about 350 to 400 million taka every year. • To avoid congestion in Dhaka city, through which nearly all transit traffic passes, the 50 km Gazipur-Narsingdi Feeder road should be upgraded (likely cost Tk. 1500 million). • A new Tangail-Bhairab by-pass road stretching over 150 km should also be constructed (likely cost Tk. 9000 million).

22. Benefits and Costs to BD • BD may benefit directly by raising services exports to India in the form of transit fee, tolls and transport related service charges. • Indirect benefits may accrue in the form of modernization and development of the road infrastructure, increased opportunities for Indian investment, and growth of ancillary services (vehicles repair, road-side restaurants etc.) • Costs of the transit facility may include the cost of administering the facility, wear and tear of roads and their maintenance, environmental costs, and costs of maintaining the security along the transit route. • A thorough study will be needed to determine these benefits and costs.

23. Estimates of Benefits of Costs • Annual royalty is the major component of benefits. The royalty amount can be settled by a dialogue with India. India now spends about Rs 100 billion every year in c/w transportation across Shiliguri. If India parts with a half of this amount, both countries will gain. BD could earn Rs 50 billion, or BDT 60 billion every year. • Bridge tolls and ferry charges could earn BDT 1 billion every year. These two heads can earn about BDT 61 billion per year. • In addition, the cost of maintenance can be shared. Compensation for environmental damage can be charged. There are also indirect benefits. These are not estimated here, however. • Costs: Maintenance and rehabilitation BDT 400 million, upgrading of road and construction of new road is BDT 10.5 billion spread over 20 years. The yearly cost should be BDT 525 million. Other expenses could be for surveillance staff and safety and security of transit, perhaps BDT 1000 million. All costs could amount together to 1925 million annually. • Net benefits to BD per year could thus be about BDT 59 billion or about $860 million. These benefits could be higher if the indirect benefits were taken into consideration. A serious study is needed to ascertain the magnitude of the likely benefits and costs.

24. Transit Related Issues and Concern • Provision of a sound road infrastructure apart, effective transit arrangement will call for the presence of appropriate regulations and measures for tackling concerns relating to safety and security of transit traffic, monitoring and management. • Technical safety concerning conditions of roads, bridges, robbery and theft. • Administrative safety aspects concerning traffic laws and their enforcement. • Non-technical obstacles that may block transit, such as hartal.

25. Transit Related Issues and Concern Contd……01 • National security concerns should be of topmost consideration. • Goods will need to be moved in closed trucks and containers with registered customs seals. • Cargo must not include contraband items, drugs, arms and military equipment. • Scanning equipment will need to be installed to detect the presence of forbidden goods. • In case of false declaration, the authorities will have the right to confiscate the consignment.

26. Recommendations • Transit facility to India appears feasible but a serious study will be needed to examine its benefits and costs. • Alternative routes and modes of transport – rail and IWT – may be examined. • Lessons should be drawn about legal, administrative and logistical aspects of transit transportations from international experience. • Transit facility to India can be allowed on economic ground but at the same time BD should also be given the facility to transit export and import cargo to Nepal and Bhutan through convenient routes across the Indian territory.

27. Recommendations Contd………01 • The concern over abuse of transit right for moving forbidden items – drugs, military weapons etc. – can be addressed by introducing modern techniques of scanning and sealing advices. • A transit agreement will be acceptable only if the benefits of allowing transit are overwhelmingly in favour of Bangladesh’s national economic interest.

28. Thanks