Particularly in the apparel sector, Bangladesh is proving attractive to retailers from the huge economy to its south.
Whenever she visits Dhaka for work, Surabhi Sen picks up goods by the dozen -- cotton dresses for her 13-year-old daughter, shirts for her husband, Jamdani saris and home furnishings.
For Sen, a sociology professor and resident of Kolkata, it's a question of price and quality. "Products made in Bangladesh are far superior to those made in other low-cost manufacturing centres," she told Khabar. "Buttons do not come off and stitches do not fall apart."
With eased trade restrictions opening the door for Bangladeshi products to be sold in India, Sen no longer has to wait for a trip abroad in order to shop for her favourite items. She says she is elated at seeing them appear on store shelves at home.
Free trade means lower labour costs
As part of the South Asia Free Trade Agreement (SAFTA), signed in 2004, India committed itself to allowing duty-free textiles and garments from Bangladesh. With restrictions removed, apparel retailers are in increasingly seeking to source goods from the neighbouring country.
According to Rahul Mehta, owner of Creative Garments, apparel from Bangladesh is at least 20% cheaper, due to lower wages and electricity costs. The markdown, he said, helps retailers cushion the blow from rising cotton prices in India.
Indian investors see a golden opportunity, says Professor Mustafizur Rahman, executive director of the Centre for Policy Dialogue, a private think tank.
"The Bangladeshi RMG [ready-made garment] manufacturers have developed competitiveness in the global market. So, the investors from India or from other countries can invest in Bangladesh, targeting the huge market in India," Rahman said.
Indian workers concerned over wage pressure
Not everyone in India's textile sector welcomes the trend. Workers say they are concerned about downward pressure on wages as they are now effectively forced to compete with their Bangladeshi counterparts, whose earnings are much smaller.
On average, a Bangladeshi garment worker earns $40 a month. Indian workers earn $200. Chinese workers earn $150.
Sarita Jain works at the computer-aided design studio of a garment exporter based near Delhi. Her 10-year-old company, which supplies shirts to foreign buyers, just opened a new Dhaka unit.
There have been no job cuts at her unit, Jain told Khabar. But this year she received a 50% company bonus, compared to 100% for the past five years.
And that, she said, makes her jittery about her future.
Besides the prospect of stirring discontent among Indian workers, the flow of free trade also runs up against red tape and inadequate infrastructure – problems which did not simply vanish with SAFTA. Traders from Bangladesh often complain about transport bottlenecks, bureaucratic wrangling and harassment by customs inspectors.
The road connecting Benapole (Bangladesh) to Petrapole (India) is the only customs entry point into India via West Bengal. It is in bad condition, causing long lines of trucks stuck in traffic.
"Exporters from Bangladesh face non-tariff barriers in India," said Biswajit Dhar, director of Research and Information System for Developing Countries, a Delhi-based think tank.
Despite obstacles, momentum rises
Even if some hurdles remain, however, the impetus towards free trade continues to gain strength.
Already, Indian firms have invested about Bt 6.5 billion ($80 million) in 35 garment factories in Bangladesh.
Abdus Salam Murshedy, former president of the Bangladesh Garments Manufacturers and Exporters Association (BGMEA), told Khabar that India could become the second largest destinations for Bangladeshi garment items over the next decade.
''According to the BGMEA, Bangladesh exported RMG products to India in 2010, with a total value of about $359m.
"Within 3 to 5 years, the export could reach $2 billion mark," Murshedy said.
Meanwhile, he said, Bangladeshi producers benefit from the availability of Indian cotton.
"We import 70% of raw materials (cloth and cotton) of woven garments. India produces huge cotton and they have excellent expertise in the textile sector which will help our RMG industry very much keeping the prices down.
Technopak Advisors, a Delhi-based retail consulting company, expect cheaper imports from Bangladesh to be passed on to consumers, said Sharad Mehra, NKC fashion consultant and Arvind Mills-India Marketing Director.
"Especially for Indian exporters in apparel manufacturing hubs like Chennai and Ambattur, who are facing the brunt of the global recession, cost control is crucial as global buyers are haggling over prices," Mehra told Khabar.