Dhaka Cancels $21 Mn Defence Contract with India Amid Rising Tensions and Trade Disruptions
In a move that underscores growing tensions between India and Bangladesh, Dhaka has reportedly cancelled a $21 million defence contract awarded to Kolkata-based Garden Reach Shipbuilders & Engineers (GRSE). The contract, signed in July 2023, involved the construction and delivery of a sophisticated ocean-going tugboat—marking what was supposed to be the first major project under India’s $500 million defence line of credit (LoC) to Bangladesh.
According to a report by The Times of India, the agreement was reached during a high-profile visit to Dhaka by Indian Navy chief Admiral R. Hari Kumar (then Admiral Dinesh K Tripathi), aimed at strengthening maritime cooperation between the two countries. The planned vessel, a 61-metre tug weighing 800 tonnes and capable of reaching 13 knots at full load, was expected to be delivered within 24 months.
The cancellation of this defence order, however, signals a dramatic shift in bilateral dynamics since the political changes in Dhaka in late 2024. The departure of Prime Minister Sheikh Hasina, a long-standing ally of New Delhi, has led to a cooling of relations. Hasina’s successor has taken a noticeably different stance, seeking to recalibrate Bangladesh’s foreign policy, including its defence and economic engagements with India.
A Symbolic Setback Amid Broader Diplomatic Strains
The cancellation of the GRSE deal is being seen as more than just a business decision—it is symbolic of the broader deterioration in Indo-Bangla ties. The new Bangladeshi leadership has shown reluctance to proceed with several India-backed initiatives, many of which were championed by the Hasina government as part of a strategy of regional alignment with New Delhi.
While no official statement has been issued by the Bangladeshi government regarding the cancellation, sources interpret the move as part of a broader strategic pivot that includes efforts to diversify military suppliers and reduce over-reliance on India.
Trade and Transport Tensions Add to the Friction
The diplomatic chill has been further aggravated by escalating trade and transport tensions. In early 2025, Bangladesh imposed restrictions on the transit of Indian goods through its territory, citing economic and regulatory concerns. Indian authorities, in turn, responded with tighter customs checks and slower clearances for Bangladeshi exports at key land ports including Petrapole and Agartala.
Transporters and exporters on both sides of the border are feeling the pressure. Long queues of stranded trucks and delays in delivery have sparked protests and appeals from trade associations for the two governments to resolve the deadlock. Many observers believe that the defence contract’s cancellation is the latest in a series of retaliatory actions that reflect a deeper erosion of trust.
Strategic Implications and Regional Repercussions
India had hoped the defence line of credit—announced in 2020 and operationalized in 2023—would serve as a long-term bridge for strengthening military and strategic ties with Dhaka. The GRSE tugboat project was expected to be followed by more complex defence procurements, including surveillance equipment and naval systems.
Now, those plans appear uncertain. There are also growing concerns in New Delhi about Bangladesh’s increasing engagements with China. Beijing has long sought to expand its footprint in the Bay of Bengal region, and Dhaka’s pivot away from India could create opportunities for deeper China-Bangladesh defence ties.
Despite the tension, Indian defence and diplomatic officials have publicly maintained a tone of restraint. Indian Army Chief General Upendra Dwivedi recently remarked that both countries “view each other as strategically important neighbours,” and warned that “any form of hostility is not in the interest of either side.”
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A Critical Moment for Bilateral Relations
The coming months may prove decisive. While the cancellation of a single defence contract may not break the relationship, it is clearly a bellwether of shifting winds.
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