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Duty-Free Quota Restrictions on Bangladesh Garments Lifted

Bangladesh’s garment industry is expected to get a boost with the duty-free access to the Indian market it has recently gained. The garment industry is among the biggest in the world.

Huge garment factories of the Envoy Group in Dhaka are humming as women stitch thousands of shirts, blouses and other apparel. Most go to the United States and Europe, only a miniscule quantity is exported to India.

But the Envoy group’s owner, Abdus Salam Murshedy, hopes that may soon change.

During a recent trip to Bangladesh, Indian Prime Minister Manmohan Singh announced that quota restrictions of 10 million pieces, imposed for decades on duty free exports of garments to India, will be lifted.

Murshedy says that has opened new opportunities for exporters like him.

“India’s internal market is [a] really, really big market. Now every year the growth is 18 percent, and India is outsourcing, and we hope that Bangladesh is the country that can make up this demand. I feel in the next five years this market will go up to $2 billion,” he said.

Bangladeshi exporters are upbeat about the duty free concessions. They have come at an opportune time when orders from Western countries may slow due to fears of another recession. Bangladesh is among the world’s top garment exporters and provides clothes for many Western brands such as Gap, H&M, and Walmart.

Bangladesh’s garment industry is also considered among the most competitive in the world - more than China’s. That is largely because labor costs are very low. The average monthly wage of $45 is less than half of that paid in countries like China and India.

Raghav Gupta, a top executive at the U.S.-based consulting firm Booz and Company, says Bangladesh’s garment industry is also at an advantage because it can use Chinese fabric.

“Indian fabric is still more expensive than let’s say Chinese fabric, and what this arrangement allows is for Chinese fabric to come to Bangladesh, get converted into garments and then get shipped to India," Gupta explained. "And the fabric price being more competent is very important because fabric makes up almost 50 to 60 percent of the cost of the product.”

But the Indian garment industry fears that Bangladesh’s gain may be their loss. So far, exports make up less than 10 percent of the $25 billion worth of garments sold in India. The rest are manufactured locally in factories in both the north and south of the country.

D.K. Nair, head of the Confederation of Indian Textile Industry, says they have warned the government that many small local manufacturers will not be able to compete with the Bangladeshi industry. He fears this will adversely impact not only garment manufacturers, but also India’s thriving fabric industry.

“They are vulnerable units, and their production economics cannot match the Bangladesh production economics because the labor cost in India is higher, the power cost is higher, and then we are a huge country, we have infrastructure problems. And when the garment requirements will be substantially sourced from imports, the domestic consumption of fabric and yarn would also come down,” Nair stated.

Bangladesh however hopes that increasing garment exports to India will make it possible to narrow its trade deficit with its giant neighbor, and also give a major boost to a sector that brings in about $19 billion worth of foreign exchange into the country.