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On 31 July, India's TATA announced its withdrawal from a US$3 billion investment plan for Bangladesh. After four years of negotiations with the Indian conglomerate, the Bangladeshi government failed to reach a consensus with TATA executives over the gas supply assurance. Following the announcement, Bangladeshi industry has been quite vocal in blaming the government for losing such a lucrative deal.

The TATA investment plan, if it had succeeded, would have been bigger than the total FDI Bangladesh has seen since its independence. Declining the largest infusion of FDI ever attempted in Bangladesh will have a negative impact on potential investors, agree Bangladeshi economists. The lack of interest on Bangladesh's part in the deal, obviously, stems from a deeper reason than a purely economic one.

Bangladesh, which earlier was largely a pro-India neighbour, is now systematically cutting off its ties with New Delhi. Today, Bangladesh has better relations, both economic and military, with China and has even been accused of supporting Pakistan in many anti-Indian activities. Clearly there is something wrong going on with Indian foreign policy towards Bangladesh. It is therefore, time to look at Indian strategy and question how India can improve its relations with Dhaka.

Over the past few years, India has made many attempts to improve its relations with Bangladesh and has offered many deals that were far more beneficial to Bangladesh than India. However, more often than not, these deals have been rebuffed by Dhaka. The best example of such an offer was the proposed FTA (free trade agreement) between India and Bangladesh, according to which, Bangladesh would have been able to trade with India without trade restrictions both nations place on other countries. India has similar FTAs with Sri Lanka and Bhutan which have been quite advantageous for those countries.

A recent study by the World Bank has explicitly stated that a FTA with India would benefit Bangladesh, while for India, the gains were small. It explained that for Bangladesh the consumer gain from such an agreement would prove significantly beneficial while India, on purely economic terms, is better off following a non-biased tariff policy towards all countries. However, Bangladesh continues to avoid the topic of FTA, seeking instead a multilateral framework under SAARC. Such a framework, however, may not even take off given Indo-Pak problems.

Even on the FDI front, TATA is not a stand-alone case. India currently has at least three major commercial projects in Bangladesh in the fields of pharmaceuticals and recycling plastic and metal scraps that are facing regulatory difficulties. Further, as of November 2007, India has removed prohibition on investment in India by citizens of Bangladesh, yet no reciprocal gesture has been made by Dhaka. Bangladesh also still refuses to allow the laying of a gas pipeline between Myanmar and India through Bangladesh, which would have not only given it an opportunity to earn revenue through transit fees but also utilize some of the gas transported through the country.

Meanwhile, Bangladesh continues to invite other countries, especially China to take on oil and gas exploration in its territory. In 2007, a Bangladeshi envoy to China invited Beijing to develop its oil sector. Further, in July 2008, Bangladesh awarded rights to offshore exploration in the Bay of Bengal to two US- and Ireland-based companies, despite the blocks being under dispute between India, Bangladesh and Myanmar.

The refusing of India's goodwill gestures is not limited only to commerce. In November, 2007 when Bangladesh was wrecked byCyclone Sidr, India offered to lend IAF helicopters for search and rescue operations. Dhaka, however, turned down this offer and instead sought US help and consequently, two US Navy amphibious assault ships were deployed to Bangladesh.

There can be many reasons for Dhaka refusing such gestures from India, even at the cost of apparent national interest. Foremost among these is the volatile domestic politics of Dhaka that has bogged the government down, lest it be accused of being "India-friendly." It can be also argued that Bangladesh feeling insecure towards it huge encircling neighbour, is likely to seek help from other countries in an attempt to thwart any possible threat India may pose towards it. Bangladesh could also well be playing the age-old diplomacy game of pitting one big nation against its rival, in this case India against China.

Whatever the reasons might be, the bottom-line for New Delhi is that it is not getting results on the Bangladesh front. Only, when India increases its economic presence in Bangladesh and develops closer relations, can it address the much more important issues of security and trade. India has to approach Dhaka with much more aggressiveness and a greater sense of urgency.

Maybe it is time for India to change its strategy. What India requires is a closer look at what other tools of international relations India can use to get Dhaka to the negotiating table. If the carrots do not work, is it time to look for a stick?