Regime Change in Bangladesh – Risk Mitigation Strategies for Indian Investors

On August 5, 2024, Sheikh Hasina, the Prime Minister of Bangladesh, resigned amidst widespread protests. An “interim” government, supported by the military, is set to take power. One of the key criticisms of Sheikh Hasina’s regime was its pro-India approach. Her government solicited and promoted Indian investments in key sectors such as energy, healthcare, pharmaceuticals, shipping, and information technology. As Bangladesh is India’s biggest trading partner in the Indian subcontinent, this change in regime may give rise to significant risk for Indian investors in the country. Indian investors would therefore be well advised to explore risk-mitigation strategies urgently.

Sheikh Hasina’s Red Carpet to Indian Investors

Sheikh Hasina’s government adopted several policies to attract investments from India. Examples include the designation of two special economic zones in Bangladesh specifically for Indian investors,¹ encouraging Indian investment in the infrastructure, energy, and transport sectors under buy-back arrangements,² execution of various cooperation memoranda of understanding (MoUs) between the countries,³ the inauguration of the India-Bangladesh Friendship Pipeline for the carriage of high-speed diesel from India into Bangladesh,⁴ and other initiatives to facilitate the cross-border movement of Indian goods via Bangladesh including increasing transport links between the two countries.⁵

As of 2019, Indian investments in Bangladesh registered with the Bangladesh Investment Development Authority totaled more than US$3 billion.⁶ In 2022, foreign direct investment from India to Bangladesh was US$15.7 million.⁷

What Does the Regime Change Mean for Indian Investors?

Many of these pro-Indian investment policies were met with political opposition in Bangladesh. Recently Sheikh Hasina’s opponents launched an “India Out” boycott movement targeting Indian goods in response to India’s alleged support for her regime.⁶ Given this background, there is a significant risk that the new regime may revisit the previous government’s pro-India policies.⁷

Concretely, this risk may materialize in several ways, including (i) discontinuation of tax and other incentives; (ii) termination or renegotiation of concessions, licenses, and government contracts; (iii) exclusion from the country or from certain activities; (iv) nationalization or expropriation of assets; (v) legal proceedings; and/or (vi) restrictions on repatriation of profits or capital. While it is still early, the new regime may not be subject to the usual constitutional and democratic constraints and processes in decision-making, and policy changes could be announced abruptly.

Availability of Treaty Protection

The India-Bangladesh Bilateral Investment Treaty (India-Bangladesh BIT) has been in force since July 7, 2011, and protects Indian investments in Bangladesh.

The treaty guarantees Indian investors important protections such as nondiscrimination (“most-favored nation” and “national treatment”), protection against expropriation, fair and equitable treatment, and the right to repatriate capital and returns. The protection against expropriation has been interpreted in previous cases, under other similar treaties, to cover all forms of deprivation of property, including the termination of concessions and licenses. The guarantee of fair and equitable treatment has similarly been interpreted to be a protection against arbitrary government action and to safeguard the legitimate expectations of investors in making the investments. Further, important for the present context, the India-Bangladesh BIT requires Bangladesh to treat Indian investors in the same way as domestic investors when awarding any compensation for losses from “national emergency or civil disturbances.”

If an Indian investor believes that its rights under the BIT have been breached, it can initiate legal proceedings against Bangladesh to secure compensation. These proceedings will be decided by an international arbitral tribunal (i.e., not the Bangladesh courts) acting under the arbitration rules of the UN Commission on International Trade Law (UNCITRAL).

What Should Indian Investors Do Now?

The situation in Bangladesh is evolving quickly, and Indian investors should monitor it closely to assess how it will affect their investments in Bangladesh. Investors can already take the following actions to ensure that they are protected by the India-Bangladesh BIT and are eligible to bring legal proceedings should the need arise:

• Review their corporate structures to ensure that they meet the definitional requirements of “investor” and “investment.”
• Explore restructuring their investments where necessary and appropriate to ensure protection under investment treaties.
• Carefully document all resources invested and/or expended in Bangladesh.
• Carefully document any and all losses occasioned by the civil unrest and/or policy changes under the new regime.
• Obtain specific legal advice on the India-Bangladesh BIT before communicating with the new regime (including on any policy changes).

¹ TBS News, “India to invest $115m in Bangladesh’s special economic zone,” July 2020, available here; The Daily Star, “Two Indian SEZs saw no visible progress in over two years. Here’s why,” June 2024, available here.
² The Daily Star, “PM urges Indian firms to invest in Bangladesh,” September 2022, available here.
³ For example, the MoU between the Ministry of Jal Shakti, Government of India, and Ministry of Water Resources, Government of Bangladesh, on the withdrawal of water by India and Bangladesh from Common Border River Kushiyara; the MoU between the Ministry of Railways, Government of India, and the Ministry of Railways, Government of Bangladesh, on collaboration in IT systems such as FOIS and other IT applications for Bangladesh Railway; the MoU on scientific and technological cooperation between the Council for Scientific & Industrial Research, India, and the Council of Scientific & Industrial Research, Bangladesh; the MoU on cooperation in the areas of space technology between New Space India Limited and Bangladesh Satellite Company Limited; the MoU between Prasar Bharti and Bangladesh Television (BTV) on cooperation in broadcasting, source available here.
⁴ Ministry of External Affairs, Bilateral Brief Bangladesh, February 2024, available here.
⁵ World Bank, “Bangladesh corridor vital to India’s ‘Act East’ policy,” September 2017, available here.
⁶ World Trade Centre Mumbai, Investor Presentation – “Exploring and enhancing Bangladesh-India Bilateral trade,” 2019, available here.
⁷ The Daily Star, “PM urges Indian firms to invest in Bangladesh,” September 2022, available here.