India halts transit facility for Bangladesh exports as it reassesses trade and security

India has withdrawn a key transit facility that allowed Bangladesh to move export cargo through Indian territory to third countries, amid heightened global trade friction following US President Donald Trump's reciprocal tariffs announcement on 2 April.

The decision, issued through Circular No. 13/2025-Customs on 8 April, effectively dismantles a route that allowed Bangladesh to trade with Bhutan, Nepal and Myanmar, raising fresh concerns about regional trade disruption and questions around India’s obligations under World Trade Organization (WTO) rules.

The move cancels Circular No. 29/2020-Customs, which had allowed transshipment of Bangladeshi goods via Indian Land Customs Stations (LCSs) to Indian ports and airports.

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For Bangladesh, the decision hampers a system that had helped move its exports to neighbouring countries quickly and at low cost for years.

While cargo already in transit will be allowed to exit based on existing procedures, the facility itself has been terminated with immediate effect, the government notification said. 

Ajay Srivastava, co-founder of the Global Trade Research Initiative (GTRI), said the development was geopolitically significant. “While India has long supported Bangladesh’s trade by offering duty-free access to its market, this step sends a message that economic facilitation cannot be divorced from national security concerns,” Srivastava told Mint. “Bangladesh’s decision to invite Chinese help in revitalising an air base near India’s Siliguri Corridor may have crossed a red line.”

The air base in question is at Lalmonirhat, close to the narrow Siliguri stretch also known as the Chicken’s Neck—India’s critical gateway to its northeastern states. Reports suggest Bangladesh is exploring strategic cooperation with China in the region, prompting apprehensions in New Delhi about a growing Chinese footprint near a militarily sensitive zone.

Fallout beyond Bangladesh

The fallout from the cancelled facility is likely to be felt beyond Bangladesh. Bhutan and Nepal, both landlocked and heavily dependent on Indian territory for trade access, will now see their logistics chains with Bangladesh disrupted.

While India remains a vital transit partner for these countries, the abrupt blocking of the corridor that connects them to Bangladesh could trigger diplomatic friction and logistical uncertainty. Myanmar, another key destination for Bangladeshi exports via India, may also face supply-chain delays.

“This could lead to higher costs and delays for Bangladeshi exporters and importers, and also hamper regional trade ambitions,” Srivastava noted. “It may even provoke discussion on whether India is still meeting its WTO commitments on transit for landlocked countries.”

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Under Article V of the General Agreement on Tariffs and Trade (GATT) 1994, WTO members are obligated to allow freedom of transit through their territories for goods going to and from landlocked countries, free from unnecessary delays and duties. The WTO’s Trade Facilitation Agreement (TFA), which India has ratified, strengthens these principles, promoting smoother customs processes and regional coordination.

However, while these rules apply broadly, they are not absolute. National security concerns can be cited in certain cases, so countries have some leeway. “India will need to clearly communicate its rationale, especially to Bhutan and Nepal, and may have to walk a fine line between strategic interests and trade facilitation,” said Srivastava.

A new reality?

The timing of this development adds another layer of complexity. Just last week, President Trump’s reciprocal tariff plan jolted the global trade order, with India now facing a 26% tariff on all its exports to the United States. Against this backdrop, India's decision to roll back its role as a facilitator in South Asian trade corridors may be read as part of a larger recalibration of its external trade posture—one that prioritises strategic autonomy and geopolitical caution over multilateral trade principles, said Dr Dattesh Parulekar, assistant professor of International Relations at Goa University.

India has long championed connectivity in South Asia, backing initiatives such as the BBIN (Bangladesh-Bhutan-India-Nepal) transport agreement and offering one-way duty-free access to nearly all Bangladeshi products except alcohol and cigarettes.

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