DHAKA — Businesses are bracing for possible impact after neighbors India and Bangladesh recently imposed tit-for-tat trade restrictions after months of verbal sparring.

Last month, Bangladesh restricted land imports of cotton yarn from India to shield local industries from cheaper imports.

Dhaka's move came days after India abruptly stopped the transhipment facility it had offered Bangladesh to export its cargoes to third countries via its ports and airports, citing "congestion".

Relations between the countries have soured since former Prime Minister Sheikh Hasina was ousted in August after massive protests. She is currently in exile in India and an interim administration headed by Nobel Peace Prize laureate Muhammad Yunus is in charge.

Since then Dhaka has demanded Hasina be extradited to face charges of crimes against humanity, money laundering and corruption. Hasina denies the accusations against her, and Delhi has not officially reacted to the demand.

India has also frequently criticized reports of attacks on the minority Hindu community in Bangladesh. It recently said the alleged killing of a Hindu community leader "reflects a pattern of systematic persecution under the interim government".

Bangladesh, a Muslim-majority nation, denies targeting minorities, calling most incidents politically motivated or ordinary crimes. Hindus make up less than 10% of its 170 million population.

As the countries spar, firms are counting the cost.

Yarn, vital for Bangladesh's clothing factories, can still enter by sea and air — but they are slower and costlier routes.

In 2024, India had exported $1.6bn (£1.2bn) worth of cotton yarn to Bangladesh, a third of it via land ports.

The now-halted transhipment facility let Bangladeshi exporters send clothes made for high-end brands by road to Indian cities, from where it would be flown to Europe and the US.

"It's a blow [to Bangladesh's fast-fashion export industry]," says Anis Ahmed, head of supply chain firm MGH Group, which ships for brands such as Zara. "The India route got cargo to Western countries in a week. By sea, it takes up to eight weeks."

Bangladesh, the world's second-largest garment exporter after China, shipped $38bn in clothing last year. Over $1bn of this moved via the India land-air route, which Ahmed says was thriving.

Limited air freight capacity and under-equipped airports hamper direct exports from Bangladesh.

Many see Delhi's withdrawal of the transhipment facility as a response to remarks by Yunus during a recent China visit.

He had called Bangladesh the "only guardian of the ocean" for India's landlocked north-east and suggested that the region could become an "extension of the Chinese economy."

Leaders from India's north-eastern states called the comments "offensive".

Yunus's remarks, spotlighting India's strategic vulnerability in the region to China, raised alarms in Delhi.

India's north-east is linked to the mainland by the 20km-wide Siliguri Corridor — dubbed the "chicken's neck" — flanked by Nepal and Bangladesh and close to Tibet's Chumbi Valley.

With a history of border tensions and having lost a war in 1962, Indian defense planners fear that China could target the corridor to cut off the north-eastern states from the rest of the country in any future conflict.

Bangladeshi analysts say Yunus's remarks were misinterpreted and aimed at promoting regional connectivity.

During his China visit, Dhaka also welcomed Beijing's interest in a $1bn Teesta River project in northern Bangladesh.

Indian analysts warn that Chinese involvement in the project, which is not far from the strategic Siliguri Corridor, could unsettle Delhi. — BBC