That 2023 will be a difficult year for the world economy, is more or less certain. For the first time since the end of the Cold War; the US, Europe and one-time growth engine China, are together entering a recessionary phase.

“China’s (domestic) retail trade declined by 5.9 per cent year-on-year in November 2022, much faster than a 0.5 per cent fall in the prior month and worse than market expectation of a 3.7 drop,” reports Trading Economics.

India (and Indonesia) will remain an exception to this trend. And, that’s the best bet for the Bangladesh-Bhutan-India-Nepal (BBIN) sub-regional economies of Bangladesh, Nepal and Bhutan; which are already seriously stressed from sustained turbulence for nearly three years.

The redistribution of demand by Europe following the Ukraine crisis will keep coal prices strong. Inadequate supply of shale oil in the US and, expected production cuts by Organization of the Petroleum Exporting Countries (OPEC) may ensure firmness in crude prices.

The anticipated tightness in the energy market and the high value of the dollar may together throw fresh challenges to smaller economies in 2023. Their import bill should remain high but foreign currency earning opportunities will be limited.

Bhutan and Nepal are relatively safe due to their small size, less exposure to the world economy and, currency pegging with the Indian Rupee (which is among the best-performing currencies against the Dollar).

However, the going may be tough for 17 crore population-strong Bangladesh, which depends hugely on the USA and Europe to market ready-made garments, contributing 85 per cent of export revenue.

And, that brings regional cooperation, particularly energy cooperation, into context. It would be extremely important for the region to expand the scope of such cooperation to optimise opportunities as well as mitigate risks.

China Is A Major Drag

The situation is indeed difficult, as China has proved to be a major drag on the world economy. The Chinese economy is facing structural headwinds and, Beijing is looking susceptible to policy inconsistencies.

Sustained Covid restrictions imposed by Beijing were a prime reason behind supply chain disruption and the associated global inflation. Now that China suddenly withdrew restrictions, under popular protest, infection is skyrocketing, creating worldwide concerns.

The slowdown will impact the global sourcing of Chinese products but not as much in the subcontinent. Loans offered by Beijing for exorbitantly costly infrastructure building, with high sourcing obligations, will keep imports steady.

It’s a double attack of high imports followed by high forex outgo on loan repayment. Worse, many such projects may prove white elephants. Sri Lanka paid a heavy price for such a misadventure.

Bhutan is almost free from Chinese influences. Nepal is partially exposed. Overall, China’s exposure is still low in these two countries, as 70-75 per cent of their imports (ITC mirror data) and, 80-90 per cent of exports are directed to India.

For Bangladesh — which piled up Chinese loans in the last decade and is the largest buyer of China-made military hardware — Beijing is a top import destination, followed by India.

Having said that, Bangladesh’s imports from India gained strategic importance over the last few years, with the increasing share of energy, food and raw material for the export-oriented garment industry.

In 2021, Indian exports to Bangladesh doubled vis-à-vis a 60 per cent rise in imports from China.

But the most interesting shift has taken place on Bangladesh's export front. Between 2017 and 2021 (ITC data), India’s ranking, as an export destination of Bangladeshi products, improved to seventh from eighteenth. China was stuck to the thirteenth slot.

To sum up, a strong and stable India can offer a better cushion to Bangladesh — which is in the middle of a foreign exchange crisis — and the rest of the sub-regional economies, in this crucial hour.

Petroleum Trade Should Expand

Energy security will be crucial, as any disruption in supply (as Bangladesh has been facing) may rob further growth opportunities and accentuate the liquidity crisis.

India has established the 69 km cross-country Motihari-Amlekhgunj diesel pipeline with Nepal in 2019. The 130 km Siliguri-Parbatipur diesel pipeline between India and Bangladesh is expected to be operational in March 2023.

The one million tonne per annum (MTPA) capacity pipeline will be operated by the Assam-based Numaligarh Refinery (NRL). The mechanical installation is complete. The pipeline is now undergoing pre-commissioning tests.

Bangladesh is yet to build the requisite storage facility at Parbatipur. This will limit the initial offtake to one-fourth of the pipeline capacity. NRL is exploring means to send more fuel through road and inland water.

The export potential of NRL will rise following completion of the capacity expansion (from three to nine MTPA) at the end of 2024. The upcoming multimodal terminal at Jogighopa in Assam will help ship more products (over and above the pipeline transfer), to Dhaka.

Regional trade is a win-win for Indian refiners, given the rapid energy transition to electric, hydrogen etc. While oil companies are switching to petrochemical production, in the mid-term they will have a huge exportable surplus of diesel.

However, the lack of infrastructure in the neighbouring economies is a major hurdle to reaching this goal. Nepal requested India to build two more cross-country pipelines of 50-70 km each, to override its lack of transport and storage facilities. Bangladesh is also keen on the extension of the Parbatipur pipeline by 50 km to Rangpur.

Under normal circumstances, pipelines are unviable for such small distances. However, India might take a favourable look at some of these proposals, for better market access.

New Opportunities In Electricity

Electricity trade is not new to the sub-region. Hydroelectricity imported from Bhutan is a critical element in India’s electricity basket.

India has been mitigating peak shortages in Nepal for many years. With Kathmandu adding hydroelectric capacities, Delhi recently created provisions for importing over 400 MW of electricity from Nepal.

In the second half of 2022, the Himalayan country exported electricity worth $83 million (INR 683 crore) to India as against its annual power import of $116 million (INR 954 crore). Energy became the third largest export revenue earner for Nepal.

India is now supplying a little less than 1,200 MW to Bangladesh. Imports contributed nearly 10 per cent of the power availability in Bangladesh in 2020.

The importance of the deal became clear in 2022 when the foreign exchange crisis forced Dhaka to regulate generation from costly gas and liquid fuel, together accounting for 85 per cent of the supply in 2020.

The share of imports will rise dramatically in 2023, as Adani Power will initiate dedicated supply from a 1600 MW plant in Jharkhand. The first unit and transmission facilities on the Indian side are ready.

Supplies will start as soon as Dhaka completes substation work at their end, expectedly in February. The second unit is scheduled to be on stream by March 2023.

The scope of the trade can increase immensely if the four nations create a common or synchronous electricity grid. India and Bhutan are already running one of the oldest such cross-country grids in the world.

It is time for Bangladesh and Nepal to join the system making it a parallel to Continental Europe Synchronous Area (CESA).

A synchronous grid ensures two-way trade and is run under a common code. It requires participating nations to maintain the same technical and commercial standards in grid operations.

Due to a mismatch in technical standards and regulatory framework, India does electricity trade with Nepal and Bangladesh through asynchronous (limited one-way operations) mode.

Create Regional Grid

The sustained capacity addition by all BBIN countries, coupled with a rise in the share of renewable generation in India; are opening new opportunities for electricity trade in the region.

A common grid will help tap such opportunities, ensure energy security at optimal use of resources and reduce carbon footprint.

For example, Northeast India should be electricity-surplus with the commissioning of the first two units of the 2000 MW Lower Subansiri Hydroelectric project by June 2023. The surplus will keep rising with time as more projects are lined up in the region.

Hydroelectricity generation suffers a high degree of seasonality and peak/off-peak difference. To solve the problem, India is adding pump-storage facilities. A synchronous grid could have saved that cost by exporting the surplus to Pakistan or Nepal.

Asynchronous trade limits this prospect, as every export or import operation needs the creation of new interconnections which are both costly, time-taking and lacks flexibility.

Lower Subansiri HE Project

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