It says India is desperate to build on the 'sole undisputed success in the Narendra Modi government's neighbourhood policy' by deepening investment ties.

A joint working group the two countries set up during Indian premier Modi's visit to Dhaka last June has the picked SEZ sites at Bherhamara near Khulna, Keraniganj near Dhaka and Mirsharai in Chittagong for possible SEZs at its first meeting earlier this week, The Telegraph report said.

Bangladesh had earlier indicated willingness to offer two SEZs to India and the decision to hike the number to three points to the growing strategic push Dhaka is giving to ties with New Delhi at a time the Sheikh Hasina government is locked in a diplomatic spat with Pakistan, it says.

Bangladesh's decision to execute convicted 1971 war criminal Motiur Rahman Nizami on Wednesday has sparked a diplomatic tit-for-tat with Pakistan.

Islamabad summoned Bangladesh's high commissioner to protest what it called an "unfortunate" execution, while Dhaka called in Pakistan's envoy to argue that Islamabad's support for Nizami only proved its role in the massacre of innocent civilians in 1971.

India has unambiguously come out in support of Nizami's execution, saying the move "has wide public support."

But the decision to move swiftly on setting up the SEZs - of which two will focus on information technology - is also rooted in an economic logic closely tied to India's hopes to tap into China's current economic distress by developing an alternative manufacturing hub, said 'The Telegraph' report.

"I have already spoken to the export processing zone regulators in Bangladesh, and we are looking forward to the idea of the Indian SEZ," Bangladesh's State Minister for Foreign Affairs Shahriar Alam had said on the eve of Modi's visit to Dhaka last year.

India is keen to combine with Bangladesh to build a South Asian manufacturing supply chain that uses their Bay of Bengal ports, the cheap labour and raw materials to manufacture garments, electronic goods and information technology services for export, the report said.

Bangladesh, over the past few years, has tried to build its own export-driven supply chain. From 2006, when it stood behind India and sixth globally among exporters of apparel, Bangladesh has now raced to second spot - behind only China.

The garment industry employs more than four million people in Bangladesh, and contributes the bulk of the country's exported merchandise.

India is already unwittingly a party to Bangladesh's supply chain - much of the raw material like cotton used to produce garments in Bangladesh is sourced from India

But officials argue that a regional supply chain network would allow India and Bangladesh to jointly bargain for better prices, akin to the European Union, at a time wage rates in China have also risen.