Why India is losing out to neighbouring Bangladesh in textile exports

The govt's serial failures to negotiate free trade agreements, and the industry's dependence on duty drawbacks at the expense of innovation are causing the textile industry to lose out to Bangladesh

India’s garment-making success has started to fray at the seams. Once a leading supplier of apparel to western clothing lines, its exports have stagnated and remained at $17 billion for the past three years.

It is not that the demand has shrunk. Instead buyers have moved to neighbouring Bangladesh, which is riding on free trade agreements (FTAs) and lower wages to edge out competitors in international market.

During the time India saw a slide in exports, Bangladesh nearly doubled its shipments. In the eight months till November in the current fiscal, India's exports stood at $9.975 billion compared to $11.05 billion during the same period last year. For Bangladesh, exports were at $14.19 billion for five months till November, a 19 per cent increase from the $11.96 billion over the same period last year, according to Bangladesh government data.

The textile sector has become the biggest contributor to Bangladesh’s economy, paving the way for its entry into the middle-income country category by 2021. Bangladesh has set itself a target of achieving apparel exports worth $50 billion by 2021, and so far it appears on course to reach this figure.

Bangladesh's success has come despite its being a late entrant into the sector and not having raw material like cotton, for which India is the largest producer in the world. Cost effective labour and duty benefits from countries in Europe and the US have meant that garments produced in Bangladesh are 10-20 per cent cheaper than those manufactured in India. 

Some are writing off India's apparel exports sector already. Ashok G Rajani, former chairman, Apparel Export Promotion Council, says there is no great future for exporters in India in the current environment. "We tried to explain our problems to the government and represented ourselves at various forums but nothing happened.”

What many exporters want is the completion of a long-delayed Free Trade Agreement with Europe to make their exports competitive as it would bring down their cost by 10-12 per cent. But a deal is unlikely over the next year with the UK embroiled in the Brexit dilemma and India due for parliamentary elections later this year.

The industry, however, is also not fully convinced that an FTA alone would solve its problems. India has negotiated 13 times with various countries to sign FTA since 2007, but nothing could be concluded because most countries expect a reciprocal reduction in customs duties. 

Bangladesh, on the other hand, currently has the status of a Least Developed Country that qualifies it for duty-free market access or reduced tariff facilities to many developed and developing nations globally. Bangladesh enjoys duty-free access to around 52 countries, including the US, Australia, Switzerland, Japan, Turkey, Russia, Norway, New Zealand, China, South Korea, Thailand, Malaysia, and India.

At the same time, Bangladesh has also signed many trade deals offering preferential treatment to its exports. The SAARC Preferential Trading Arrangement, Asia-Pacific Trade Agreement, Bay of Bengal Initiative for Multi-Sectoral Technical and Economic Co-operation, South Asian Free Trade Area, and the Trade Preferential System among the Organisation of Islamic Cooperation member-states all allow Bangladesh exports an upper hand against India. 

India's current problems also stem from its reliance on incentives and duty drawbacks to boost exports rather than innovation and design. Many partly blame the industry for its current predicament; only a few exporters have invested in innovation to draw customers.

Overall production costs for India is high and it comes with lower productivity. On an average, Indian factories produce 10-12 pieces per shift, almost half the average 19-20 pieces per shift in Bangladesh. Wage differential partly accounts for this. “Average salary in India is around Rs 10,000 a month as against Rs 5000-6,000 a month in Bangladesh,” says Sabu M Jacob, chairman and managing director of Kitex, the world's second largest infant brand from Kerala. 

Although automation could reduce the industry's reliance on workers and improve efficiency to an extent, industry representatives say it is not suitable in the Indian context where the size of individual enterprises is relatively small. Even if automation may help address the productivity issue, it would push up power cost, says RS Jalan, MD of GHCL, an exporter of home textiles.

Yet increasing the industry's efficiency may be the only way forward, even for Bangladesh. Buyers of garments tend to go to where they can get the best deal but even Bangladesh, as its income increases and the duty drawbacks are withdrawn, will see an increase in manufacturing costs.  

"Bangladesh may also become costlier for manufacturing at some point," says Jacob. "Currently it is where Sri Lanka was a few years ago."

He adds that the Indian industry can survive if it switches to niche products instead of vying for a share of mass items that Bangladesh currently focuses on. “This will help in getting better margins and address the issue of competition,” says Jacob, whose company only focuses on clothing for infants.

Jalan says sustainable or eco-friendly clothing is another area that Indian exporters could look at. GHCL, for example, recently unveiled a range of home furnishing made of polyester fibre from recycled PET bottles. The polyester fibre, which is manufactured by Reliance Industries, is blended with cotton and spun into ultra-soft fabric. As the industry looks for ways to boost exports, it hopes these high-tech fabrics will weave a spell of growth.