Bangladesh terminated a $21 million agreement with India’s state-owned Garden Reach Shipbuilders & Engineers (GRSE), halting the construction of an advanced ocean-going tugboat for its navy.
The vessel, intended for deep-sea rescue and salvage operations, was part of a $500 million line of credit extended by India in 2023 to bolster defense ties. GRSE downplayed the financial impact, noting the cancellation affected only 0.8% of its $2.7 billion order book.
Trade Dispute Escalation
The move is widely seen as retaliation for India’s recent trade restrictions. On May 18, 2025, India limited Bangladeshi ready-made garments and processed food imports to Kolkata and Nhava Sheva ports, affecting $700 million in annual exports. This followed India’s revocation of transshipment facilities that allowed Bangladeshi goods to reach third countries via Indian routes. In response, Bangladesh banned yarn imports from India through land ports in April 2025, disrupting supply chains critical to its garment sector, which accounts for 84% of export revenues.
Political Shifts Under Interim Government
Tensions intensified after Bangladesh’s interim government, led by Muhammad Yunus, assumed power following the ouster of pro-India Prime Minister Sheikh Hasina in August 2024. The new administration banned Hasina’s Awami League under anti-terrorism laws and pivoted toward China. Yunus’s remarks labeling India’s northeastern states as “landlocked” and asserting Bangladesh’s role as their “maritime guardian” further strained relations. His proposal to facilitate Chinese trade through Bangladesh reportedly triggered India’s trade curbs.
Defense and Economic Implications
The tugboat cancellation signals a breakdown in defense collaboration, previously a cornerstone of bilateral relations. GRSE, which has built 111 warships for India and allies, remains focused on domestic projects like the Next Generation Corvette program. Bangladesh faces near double-digit inflation and a $4 billion IMF bailout, with its economy reeling from disrupted supply chains and reduced export access. Analysts warn that trade restrictions could exacerbate these challenges.
Risks of China Alignment
Bangladesh’s pivot to China includes $2.1 billion in recent deals and requests for extended loan repayment terms. However, experts caution against overreliance, citing debt risks akin to Sri Lanka’s crisis. While China offers infrastructure financing, Dhaka’s pursuit of alternative partnerships risks deepening economic vulnerabilities.