The Bangladesh model

India needs many more low-skill manufacturing jobs

India’s eastern neighbour, Bangladesh, has experienced burgeoning economic growth in recent years. The readymade garments (RMG) industry of Bangladesh, which began to thrive in the 1970s as a result of the international Multi Fibre Arrangement, is an important driver. The country’s RMG exports make up the majority of its overall exports, contributing 84.5 per cent in 2022-23. The sector also accounts for 10.35 per cent of the country’s gross domestic product and employs millions of workers. According to the recent data released by Eurostat, Bangladesh, for the first time, overtook China to become the top knitwear exporter to the European Union between January and September 2023, which can be seen as a seminal moment in the history of global trade. The country is also one of the top cotton apparel suppliers in the world, other than China and Vietnam. The Bangladesh Garment Manufacturers and Exporters Association reported that the United States was the largest export destination for Bangladeshi garments, accounting for around 21.5 per cent of total exports, followed by the European Union (EU), the United Kingdom (UK), and Canada. The industry is forecast to grow and benefit from the ongoing shift in global sourcing patterns as more and more countries look to diversify their supply chains.

Bangladesh’s impressive and sustained performance in the RMG and textiles sector can be attributed to the country’s recent investment in high value-added items. Bangladesh has prudently fathomed its comparative disadvantage in sectors that require sophisticated technology, and a high-skilled workforce and prioritised export of labour-intensive goods. The continuous process of skilling, reskilling, and upskilling to align with the changing dynamics of garment manufacturing has rendered competitiveness to exports from Dhaka in the global market. This has allowed Bangladesh to capture the industries exiting China due to its rising labour costs and tensions with the West. Besides, Bangladesh benefited from its cordial relations with both India and China as well as the Islamic world, which helped it to amplify investor confidence and attract capital from abroad. The local garment sector in the country has also taken advantage of the EU’s Everything but Arms (EBA) policy, which removes import tariffs on all goods (except arms and ammunition) coming into the EU from least developed countries (LDCs). Bangladesh’s decision to join the Regional Comprehensive Economic Partnership (RCEP) will further boost its export potential.

India, on the other hand, has underperformed in unskilled and low-skilled production and exports. One estimate suggests that this has resulted in at least $140 billion in “missing” unskilled economic activity annually. The growth of the services sector has generated insufficient opportunities to match the growing labour force, contributing to unemployment and the disproportionate distribution of skills across industries. India needs policy intervention that can push production and exports in sectors such as textiles, leather, and footwear. Bangladesh’s economic boom and significant poverty reduction figures, however, are also fraught with risk. The country will finally graduate from the list of LDCs in 2026, implying that it will no longer enjoy benefits while exporting to the EU in a few years. Lack of export diversification and over-reliance on RMG exports may challenge the sustainability of Bangladesh’s growth in the long term. While the Bangladeshi experience may not have all the answers to India’s economic challenges, there are lessons to be learnt.