NEW DELHI - India and Bangladesh have agreed to initiate official talks on a Comprehensive Economic Partnership Agreement (Cepa) during Prime Minister Sheikh Hasina's visit to India to deepen trade and energy links.

Madam Hasina is on a four-day visit to India, her first in three years, and a year before she faces general elections in her own country.

The decision to start Cepa negotiations this year, Indian Foreign Secretary Vinay Mohan Kwatra said, was taken at a meeting between Madam Hasina and Prime Minister Narendra Modi on Tuesday.

"It (Cepa) will be concluded before Bangladesh graduates from LDC (least developed country) status," he said at a press conference.

Bangladesh, which has seen fast-paced economic growth but has of late been reportedly facing some economic stress, is supposed to graduate from LDC status by 2026.

The two countries also signed an agreement on sharing water of the transboundary Kushiyara River, which Mr Modi said would benefit the people of Assam state in India and Sylhet in Bangladesh.

Amid floods in parts of South Asia, India and Bangladesh also agreed to enhance data sharing on floods.

Water sharing of cross-border rivers has been an area of negotiations between the countries, which share 54 rivers. But as anticipated, settlement on another major river, Teesta, continued to elude the two countries.

Madam Hasina has long faced domestic criticism for failing to come to an agreement on Teesta, with opposition in India coming from West Bengal Chief Minister Mamata Banerjee, who has refused to consider water sharing on the grounds it could hurt farmers in her state.

"I recall that the two countries have resolved many outstanding issues in the spirit of friendship and cooperation and will hope that all outstanding issues, including the Teesta water-sharing treaty, would be concluded at an early date," said Madam Hasina after the talks.

She added: "Bangladesh-India bilateral relations are known to be a role model for neighbourhood diplomacy."

In a neighbourhood marked by difficult relationships, India's ties with Bangladesh have been for the most part a source of stability.

Since Madam Hasina came into power in 2009, Dhaka has helped New Delhi bring down violence and terrorism in north-east Assam by shutting down insurgent camps used as a base to launch attacks into India.

She has also provided much-needed access to India's north-eastern states which are connected to the Indian mainland by a thin strip of land known as the Chicken's Neck.

India-Bangladesh trade has doubled in the last five years to US$18 billion (S$25.3 billion) in the last financial year.

Mr Modi said: "Today, Bangladesh is India's biggest development partner and our biggest trade partner in the region. There is a continuous improvement in people-to-people cooperation."

Just days before her visit to India, Madam Hasina inaugurated the Bangladesh-China Friendship Bridge over Kacha River in Pirojpur, in south-west Bangladesh.

India is keeping a close watch on Bangladesh and China's relationship.

"India is worried because Bangladesh is also playing a balancing role between India and China. India would like to ensure nothing is done that would hurt India's interest in Bangladesh," noted South Asia expert S. D. Muni.

"India-Bangladesh ties have remained smooth and they are going smooth by and large."