The Impact of Political Unrest in Bangladesh on RMG Exports From India

Bangladesh's textile industry has long been a key player in the global market, significantly contributing to the country's economy. However, recent political instability and economic challenges have left the industry in turmoil. This chaos has affected Bangladesh's domestic market and ripple effect on regional trade dynamics, including India's Readymade Garment (RMG) exports.

Exploring the Factors Behind Bangladesh's Textile Crisis and Its Impact on India's RMG Exports

1. Lack of Policy Support and Its Ripple Effects

The Bangladesh Awami League government has been criticised for its inadequate support of the textile sector, especially during the economic downturn caused by the COVID-19 pandemic. Despite the severe impact of the pandemic, the government failed to provide sufficient policy support to the industry. Shawkat Aziz Russell, President of the Bangladesh Textile Mills Association (BTMA), highlighted these concerns in a recent press conference.

Without robust government policies, textile mills were forced to continue paying workers even when production was halted. This strained the financial resources of many companies, putting them at risk of closure. The lack of policy intervention destabilised the Bangladeshi textile industry and posed a threat to regional trade, affecting Indian RMG exports as well. As the textile sector in Bangladesh falters, Indian manufacturers are experiencing increased demand pressures and competitive challenges in the global market.

2. The Gas Crisis: A Major Production Bottleneck

One of the critical issues plaguing Bangladesh's textile industry is the ongoing gas crisis, which has severely impacted production. The industry is currently operating at only 30% capacity, a situation that has caused significant disruptions in the supply chain. This gas shortage has led to delays in meeting international orders, damaging Bangladesh's reputation as a reliable supplier.

For India, this presents a mixed impact. While some Indian RMG exporters might benefit from diverted orders originally intended for Bangladeshi suppliers, the instability creates an unpredictable market environment. Buyers seeking consistency and reliability might shy away from the region entirely, opting for suppliers in other countries such as Vietnam or Cambodia.

3. Financial Strain and Unmet Promises of Low-Interest Loans

BTMA Vice President Abul Kalam pointed out another pressing issue: the unfulfilled promise of low-interest loans to help factories pay their workers. Approximately 90% of textile factories have not received these loans, leaving them in financial distress. This lack of liquidity has exacerbated the industry's problems, leading to delayed payments, layoffs, and reduced production.

India's RMG sector, though not directly affected by these financial woes, is experiencing indirect impacts. As Bangladeshi companies struggle to fulfil international orders, contract competition intensifies. Indian exporters might see a short-term increase in demand, but the instability in Bangladesh contributes to an uncertain market landscape, complicating long-term planning and investment strategies.

4. Labour Unrest: A Growing Concern

Labour unrest in Bangladesh's textile sector has reached critical levels, further disrupting production. The unrest is often attributed to external influences, with reports suggesting that outsiders are inciting strikes and protests. Shawkat Aziz Russell has called for stronger police intervention to protect the industry, similar to measures taken to safeguard government interests.

The instability caused by frequent labour disputes affects the domestic market and broader regional trade dynamics. Indian RMG exporters face increased competition as international buyers seek to diversify their supplier base, wary of the disruptions in Bangladesh. This shift in buyer preferences can be an opportunity for India, but it also requires Indian manufacturers to ramp up production and maintain quality standards to seize the moment.

5. Smuggling Issues: Undermining Local Industry

The smuggling of textiles into Bangladesh from neighbouring countries has become a significant problem, with reports of fabrics worth Tk1,000 crore being brought in illegally, often disguised as other imports like stones. This illegal trade undermines the local textile industry by flooding the market with cheaper alternatives, making it harder for legitimate businesses to compete.

For India, the smuggling issue presents a complex challenge. While Indian exports might indirectly benefit from the competitive price pressures created by illegal goods, the overall damage to market stability and the reputation of the South Asian textile sector can have broader implications. A destabilised Bangladesh not only disrupts regional trade flows but also diminishes the region's collective bargaining power in global trade negotiations.

6. Departure of Indian Professionals and Its Consequences

The departure of Indian technicians and management professionals from Bangladesh's textile industry has further aggravated the situation. These professionals played a critical role in maintaining and operating the sophisticated machinery used in textile production. Their exit has led to significant operational challenges, including maintenance issues and production delays.

This departure affects the Bangladeshi textile sector and creates supply chain issues that reverberate back to India. Indian manufacturers who rely on Bangladeshi counterparts for certain materials or machinery parts face disruptions, adding to the complexity of managing production schedules and meeting international commitments.

7. The Call for Urgent Action: A Shared Regional Responsibility

The issues facing Bangladesh's textile industry are not isolated; they have regional and global implications. Shawkat Aziz Russell has called for urgent measures, including rescheduling bank loans for the textile sector, to provide much-needed financial relief. Without immediate and comprehensive policy support, the industry risks further decline, which could cascade effects on neighbouring countries, including India.

For India, the situation presents both challenges and opportunities. On the one hand, there is an opportunity to capture market share as buyers seek alternatives to Bangladeshi suppliers. On the other hand, the broader regional instability could lead to a loss of confidence among international buyers, affecting all South Asian exporters.

Conclusion: A Strategic Path Forward

The textile industry is a cornerstone of Bangladesh's economy, contributing significantly to GDP and export earnings. However, the current political and economic turmoil threatens to derail this sector, with far-reaching consequences for regional trade dynamics. For India, this presents a critical juncture. While the immediate impact might include increased demand for Indian RMG exports, the long-term implications of an unstable Bangladesh must be carefully managed.

Both Bangladesh and India, along with other regional stakeholders, must work together to address these challenges. This could include collaborative policy initiatives, regional trade agreements, and joint efforts to combat smuggling and other illegal activities undermining market stability. By taking a proactive and cooperative approach, the region can navigate the current crisis and emerge stronger in the global textile market.

The chaotic state of Bangladesh's textile industry serves as a stark reminder of the interconnectedness of regional economies. The impact of political unrest and economic challenges extends beyond national borders, influencing trade patterns, market dynamics, and the strategic decisions of businesses across the region. For India, the situation offers both a cautionary tale and an opportunity to strengthen its position in the global RMG market. The path forward will require careful navigation, strategic planning, and a commitment to regional cooperation to ensure sustained growth and stability.

Source:- LinkedIn