Bangladesh’s Crisis: An Unexpected Opportunity for India’s Textile Sector

With the intensifying political crisis in Bangladesh, its textile industry is facing severe disruptions which is a critical component of its economy. As international buyers look for alternative markets, India stands to benefit significantly. The textile sector, contributing a major share of Bangladesh’s exports, faces severe impacts due to the unrest, prompting buyers to shift their focus to countries like India.

Background

Bangladesh is currently experiencing violent riots, forcing Prime Minister Sheikh Hasina to flee. The unrest is driven by political tensions, economic uncertainties, and protests from opposition parties demanding her resignation which has resulted in clashes between police and protesters, property damage, and huge instability in the country. 

Potential Gains for India

Industry experts predict that India could gain an additional $300-400 million in business per month if 10-11% of Bangladesh’s export orders are diverted to Indian hubs such as Tiruppur as this unrest in Bangladesh has created an opening for India to boost its position in the global textile market. K M Subramanian, President of the Tiruppur Exporters’ Association, anticipates at least a 10% increase in orders this financial year compared to the last. 

Bangladesh’s monthly apparel exports, valued between $3.5-3.8 billion, have a significant market share in the European Union, the United Kingdom, and the United States. In contrast, India’s current monthly exports range from $1.3-1.5 billion. Prabhu Damodaran, Secretary to the Indian Texpreneurs Federation, noted that India can handle an additional $300-400 million in orders immediately, given the current capacity.

Indian Companies with Exposure to Bangladesh

Several Indian companies have substantial operations in Bangladesh and might shift their bases back to India due to the crisis. Notably, around 25% of the manufacturing units in Bangladesh are owned by Indian companies such as Shahi Exports, House of Pearl Fashions, and Gokaldas Images.

VIP Industries sources 30-35% of its capacity from Bangladesh, while Marico, Dabur, GCPL, Britannia, Jubilant Foodworks, and Trent have varying degrees of exposure to the Bangladeshi market.

Competitive Advantage of India

India’s textile industry is well-positioned to benefit from the turmoil in Bangladesh. Central bank data indicates that Bangladesh imported RMG raw materials worth $7.92 billion in the first half of FY24, with a major portion coming from India. Indian companies like Lahoti Overseas, Square Corporation, and Indorama have established strong ties with the Bangladeshi textile industry, supplying raw materials and finished products.

Surge of New Indian Textile Ventures

The number of Indian businesses entering the Bangladeshi market has surged in recent years. Companies like Tirupati Balaji Exim, Alpine Expo Tex, and KS Spinning are expanding their operations in Bangladesh to meet the growing demand for textile products.

Payment System Challenges

One of the main challenges Indian businesses face in Bangladesh is the issue of Letters of Credit (LC). Delays in payment processing have been reported, with payments being made after 30-35 days instead of the usual 7-10 days. This issue poses a roadblock for companies such as Texperts and Goel Polyfab, which have substantial export volumes to Bangladesh, as per the reports.

Conclusion: The political crisis in Bangladesh presents an opportunity for India’s textile industry. With the capacity to absorb additional orders and the advantage of established trade relations, Indian companies can benefit significantly. With a good positioning, Indian textile companies can gain a major share of the diverted orders, strengthening their presence on the international stage.

However, challenges such as payment delays need to be addressed to fully capitalize on this opportunity. As the situation in Bangladesh unfolds, India’s textile sector stands ready to step in and meet the global demand, potentially leading to a boost in exports and economic growth.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.