Bangladesh garment industry gains at India, China expense

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Gyanendra Kumar Keshri | 04 Feb, 2013
India's garment industry is losing out to Bangladesh due to rising input costs, especially on labour and tax incentives, Bangladesh Commerce Minister Ghulam Muhammed Quader said in an interview in Agra.

Quader said rising input costs in India and China - the two big players in readymade garments business - offered a good opportunity for his country to expand its readymade garments business.

"India is shifting away from the readymade garments business. There has not been any significant investment in India in the readymade garments industry in the recent years," Quader, who was in India to attend the Partnership Summit in Agra, told reporter in an interview.

He said rising wages and other input costs would make the readymade garments business uncompetitive in India and China.

"This will be a big opportunity for Bangladesh to develop its readymade garments business. We are already benefiting from it," he said.

The garment industry has become the mainstay of the Bangladesh economy, accounting for more than 80 percent of the country's exports. Bangladesh's exports in 2012 were $24.3 billion, of which garments contributed $19 billion.

Quader said availability of cheap labour was the main reason for the sharp increase in readymade garments business in Bangladesh in recent years.

He said many Chinese companies have shifted their production facilities to Bangladesh to take advantage of cheap labour.

"Many Chinese companies are opening production facilities in Bangladesh. Even for their domestic use, they are supplying garments form our country. I hope the Indian companies will also do the same," Quader said.

"Wages have been going up in India. Other costs are also going up with rising living standards," he said.

Apart from cheap labour, Bangladesh's readymade garments industry also benefits from tax incentives on exports, especially to European countries.

Bangladesh, which is categorised as a least developed country (LDC), enjoys duty-free access to European markets, while Indian firms have to pay 9.6 percent duty.

Labour costs in Bangladesh are almost one-third of those in India. The average monthly labour cost in India is over Rs.7,000 per person, while it is just around Rs.2,500 in Bangladesh.

Due to duty concessions and low labour and other costs, garments produced in Bangladesh become 15-20 percent cheaper than those in India.

This is a big threat to the $55 billion Indian textiles industry, which provides direct employment to over 35 million people, the second largest after agriculture, and contributes to nearly four percent of the country's gross domestic product (GDP) and 12 percent to the total export earnings.

Quader said comparative advantage in the garments sector would help reduce Bangladesh's trade deficit with India.

Merchandise trade between India and Bangladesh was $5.51 billion in 2012, out of which India's export was $4.94 billion and import was $0.57 billion, according to India's commerce and industry ministry data.

Quader said although Bangladesh was keen to reduce the trade gap, there was no reason to be concerned.

"Our imports have increased. Some people take it in a negative sense because balance of trade is heavily in favour of India. But these are the products that we need. If we don't buy these from India we will have to buy them from some other countries at higher prices," he said.

Quader said India-Bangladesh economic and political relations have strengthened in the recent years. He said $1 billion soft loan offered by India would help develop infrastructure in Bangladesh, especially rail and road networks.

(Gyanendra Kumar Keshri can be contacted at gyanendra.k@ians.in)