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Why Bangladesh’s cotton industry remains a challenge to India, the biggest-cotton-producer in the world?

Bangladesh cotton industry: Much of the current state of the flourishing cotton industry in Bangladesh has roots in its past. Historically, the united Bengal region before the 1947 partition of India during British rule has been a formidable source of raw cotton and cotton industries.

Bangladesh has been the favourite place for world-renowned clothing brands; the country’s success story is not unknown. There are many factors that contribute to it being the hub of the industry in the region and why it is preferred over India, despite the latter being much larger in population size and resources. We take a look into it.

Availability of cheap labour

According to reports shared by Asian Development Bank and the International Labour Organization, an average factory worker in Bangladesh earns the lowest wage compared to other countries. In other words, the wage is one-third of the average wage paid to workers in other countries of the region. The low pay rate accompanied by long working hours has also forced many working parents to get their children to drop out of school. Child labour is rampant in the country, especially in the Dhaka area. This factor has added more cheap workforce in the country. Since garment manufacturing and export is the leading industry of the country, the cheapest workforce ends up in this sector. Wages are one of the key cost influencers in the textile and clothing industry. Since cheap labour is at the disposal of manufacturers and exporters, they offer the finished product at much lower rates. The neighbouring countries like India and Sri Lanka, thus cannot compete with the prices of finished goods offered by Bangladeshi manufacturers.

Historical connection of cotton with Bangladesh

According to CIHEAM publication Climate Change: Resilience in Bangladesh Cotton Production, Bangladesh has a long history and tradition of producing some of the finest cotton and textile that dates back to the medieval age. For the past many centuries, the Bengal region has been famous for producing some of the finest cotton fabrics, including muslin. The high lands of Dhaka region provided the best quality cotton, required for the production of muslin and most of the muslin handlooms were located in this area only. However, during the time of British rule, the trading and production of muslin decreased gradually. After 1947, when present-day Bangladesh was not an independent country, but East Pakistan, limited to no efforts were made to revive cotton production or to uplift the related industry. The raw cotton required by the local textile industry was supplied from the regions in West Pakistan. After Bangladesh’s independence in 1971, the importance of reviving the age-old cotton industry was felt in the country as the supplies from Pakistan were suspended.

Role of Bangladesh’s Foreign Direct Investment Policy

World Bank’s 2019 working paper titled, The Textile-Clothing Value Chain in India and Bangladesh says that Bangladesh offers a welcoming investment climate to foreign investors, with a liberal Foreign Direct Investment (FDI) regime that permits full foreign equity and easy remittance of royalties, technical assistance fees, and profits. To attract foreign investment, the country provides additional ex-post facilities such as tax holidays, tax exemptions, duty concessions, and accelerated depreciation. The Foreign Private Investment (Promotion & Protection) Act of 1980 provides legal protection to foreign investors against nationalization and expropriation. Furthermore, Bangladesh has signed numerous international agreements related to foreign investment, ensuring protection and support for investors.

India’s struggle with FDI in textiles and clothing sector

Despite having a liberal investment policy framework in the textile and clothing sector, foreign capital inflows have remained minimal. In mid-2015, FDI inflows in the sector were only $ 0.23 billion, up from $0.02 billion in 2008. This can be attributed to a lack of infrastructure, a fragmented industry structure, a non-conducive business environment, complex regulations, high transaction costs, stringent labour rules, and sectoral caps on FDI in the retail sector. Additionally, there is a lack of synergy between the National Manufacturing Policy (NMP) and FDI policy, which aims to promote technology spillovers through joint ventures. Instead of aligning the FDI policy with the NMP objective, policymakers allowed 100% FDI in all manufacturing sectors under the automatic route. This has resulted in tensions between the FDI policy, which aims to attract foreign investors, and the NMP, which aims to promote technology transfer through joint ventures.

Despite the numbers in population and more people participating in the cotton textile industry, India gets tough competition from Bangladesh. While most factors favour India to overtake its neighbour and become the first preference for textile and clothing in the world, the road still seems long without any policy reforms in sight.

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