Bangladesh has no significant impact on India’s trade: CRISIL

Mumbai: Mayhem in Mumbai Bangladesh According to the credit rating agency, there was no significant impact on India’s trade and henceforth its impact will vary based on sector/industry specific nuances and exposure Crisis Rating Ltd.

It does not foresee any near-term impact on India’s credit quality. However, a prolonged disruption could impact the revenue profiles and working capital cycles of some export-oriented industries where Bangladesh is a demand or manufacturing hub. This and the movement in Bangladesh’s currency, the taka, are worth monitoring.

CRISIL Ratings will closely monitor the situation and continue to assess the impact on credit quality, a press release in Mumbai said on Tuesday.

Sectors like cotton yarn, energy, footwear, soft luggage, fast moving consumer goods (FMCG) may see a small but manageable negative impact, while ship breaking, jute, ready-made garments (RMG) should benefit. For most others, the impact will be negligible.

India’s trade with Bangladesh is relatively low, accounting for 2.5% of its total exports and 0.3% of its total imports in the last fiscal year.

Exports mainly include cotton and cotton yarn, petroleum products, electrical energy, while imports largely include vegetable oils, seafood, and apparel.

For cotton yarn players, Bangladesh accounts for 8-10% of sales, so the revenue profile of major exporters may be affected. Their ability to make up for sales in other geographies will be a key watch.

However, operating margins may not be significantly impacted as cotton-yarn margins are currently modest.

Companies in the footwear, FMCG and soft luggage sectors may also see some impact due to their manufacturing facilities located in Bangladesh. These facilities faced operational challenges in the initial phase of the crisis.

Most have since resumed operations, however, but it is critical that they operate at full capacity and maintain their supply chains.

Engineering, procurement and construction companies involved in power and other projects in Bangladesh may face delays in implementation this fiscal year as a significant portion of the workforce has been recalled to India for nearly a month now.

With only a gradual increase in the workforce expected, revenue records this fiscal year may be lower compared to previous expectations.

On the other hand, there may be delays in debt payments of electricity distribution companies.

Debtor risk may increase for most sectors as major transactions are made through letters of credit (LC), leading to dependency on Bangladesh banks in case of non-payment.

On the other hand, foreign exchange problems are also increasing due to the depreciation of Taka against the Rupee and other currencies.

On the other hand, companies in the shipbreaking, jute and ready-made garment sectors are seeing an increase in sales demand from major export destinations such as the US and Europe.