As production units in Bangladesh resume operations amidst political unrest, the country's garment industry faces significant disruptions. Western companies, wary of the ongoing violence, have temporarily halted placing new orders in Bangladesh, according to a report by The Indian Express citing industry sources. This pause is creating ripple effects that extend to India's textile sector, a key supplier of raw materials to Bangladesh.
Moneycontrol couldn't independently verify the report.
Bangladesh is a major destination for Indian cotton exports. A Moneycontrol analysis from earlier this month highlighted that while the political crisis in Bangladesh may not drastically impact overall India-Bangladesh trade, it poses a significant threat to India's cotton sector. India exports $2.4 billion worth of cotton to Bangladesh annually, making it a key market for Indian cotton producers. Ministry of Commerce data shows that Bangladesh's share in India's total cotton exports has surged from 16.8 percent in FY13 to 34.9 percent in FY24. Raw cotton alone accounted for a quarter of India's total exports to Bangladesh in FY24.
India's textile industry is feeling the pinch as the decline in orders from Bangladesh affects the supply chain. While India has started receiving fresh inquiries for garment production, exports of Indian cotton to Bangladesh are on the decline, according to industry executives. This development is particularly concerning given Bangladesh's crucial role as a global textile hub.
Earlier this month, Chandrima Chatterjee, Secretary General of the Confederation of Indian Textile Industry (CITI), noted that while Western companies are considering India as an alternative sourcing destination, the Indian textile industry faces challenges in meeting both the qualitative and quantitative demands that Bangladesh previously fulfilled. However, she highlighted that India's Production Linked Incentive (PLI) scheme and the PM Mitra scheme are positive steps toward strengthening domestic capacity. Also, Western markets have grown increasingly concerned about human rights issues in Bangladesh, making India a more attractive alternative.
Bangladesh’s $45 billion clothing industry, which employs over four million workers, was already under strain before the recent political turmoil. According to S&P Global, the industry has been grappling with a weakened electricity generation infrastructure, rising input costs due to the Russia-Ukraine war, and adverse weather events. The situation in Bangladesh remains a point of concern at the international level, as evidenced by discussions between Indian Prime Minister Narendra Modi and U.S. President Joe Biden on the matter.
India's Finance Minister Nirmala Sitharaman also acknowledged the impact of the situation, noting that the Indian garment and knitted fabric sector is experiencing "a bit of uncertainty" due to the developments in Bangladesh.
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