Bangladesh is set to increase the cash incentive for readymade garment (RMG) exports manufactured with locally produced yarn from 1.5% to 5%, a move expected to strengthen the country’s backward linkage textile industry, reduce dependence on imported yarn, and enhance the competitiveness of domestic spinning mills.
The proposed policy, which is expected to be officially announced in the coming days, has been welcomed by textile manufacturers and apparel exporters as a timely intervention for one of the country’s most challenged manufacturing sectors.
According to industry leaders, the revised incentive will significantly narrow the price difference between imported and locally produced yarn, encouraging garment exporters to source more raw materials from domestic spinning mills instead of overseas suppliers.
Supporting Bangladesh’s Backward Linkage Industry
Bangladesh has invested more than US$23 billion in its textile sector, with over 1,800 textile mills, including 527 spinning mills, capable of meeting virtually all domestic cotton yarn demand and around 60% of non-cotton yarn requirements. Despite this capacity, the country imported yarn worth nearly Tk26,000 crore during FY2024-25, with India remaining the largest supplier.
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Industry representatives believe the enhanced cash incentive will improve local sourcing, increase capacity utilisation, generate employment, and create greater value addition within Bangladesh’s textile and apparel supply chain.
The incentive is expected to benefit garment exporters that use locally manufactured yarn, making domestic procurement more financially attractive while strengthening the country’s integrated textile ecosystem.
Md. Salauddin, Advisor, Fashion Business Journal, welcomed the government’s decision, calling it a major boost for Bangladesh’s local textile industry. He said the increase in the alternative cash incentive from 1.5% to 5% will encourage all RMG exporters to source more locally produced yarn and fabrics, strengthening the country’s spinning, weaving, knitting, dyeing, and finishing sectors.
However, he emphasized that the incentive is available only to exporters using locally sourced yarn and fabrics; exporters relying on imported raw materials will continue to receive the previous incentive as per existing policy.
He also stressed that BGMEA, BKMEA, and BTMA must work closely together to ensure stability in the domestic yarn market. A coordinated approach among all stakeholders will help maintain fair pricing, secure raw material supply, and maximize the benefits of this policy for the entire textile and apparel value chain.
Improving Competitiveness Beyond Cost
Industry stakeholders noted that locally sourced yarn already provides operational advantages, including shorter lead times, reduced warehousing costs, lower banking expenses, and improved production flexibility. With the proposed incentive, these advantages could make domestic yarn increasingly competitive against imports.
Export-oriented garment manufacturers also believe stronger local sourcing will improve supply chain resilience and reduce dependence on imported raw materials at a time of growing global uncertainty.
Reviving a Sector Under Pressure
Bangladesh’s spinning industry has faced mounting challenges over the past two years, including weak demand, rising production costs, and intense competition from lower-priced imported yarn. Many mills are currently operating well below installed capacity, while some have suspended production.
Industry leaders argue that restoring the competitiveness of local spinning mills is essential not only for protecting existing investments but also for ensuring the long-term sustainability of Bangladesh’s apparel export industry.
Energy Supply Remains a Key Challenge
While the proposed incentive has been widely welcomed, manufacturers stressed that financial support alone will not fully revive the sector unless gas supply improves.
Many spinning mills continue to operate at reduced capacity due to inadequate gas pressure, forcing factories to depend on expensive alternative energy sources and limiting production efficiency.
Industry leaders said uninterrupted gas supply remains one of the most critical requirements for restoring full production capacity across the textile sector.
Driving Higher Value Addition After LDC Graduation
The planned incentive is also viewed as part of Bangladesh’s broader strategy to prepare for the post-LDC era. A stronger backward linkage industry would enable the country to retain more value within the domestic economy, shorten lead times for international buyers, improve supply chain security, and support the production of more diversified, higher-value textile and apparel products.
If implemented, the policy is expected to reinforce Bangladesh’s position as one of the world’s leading apparel exporters while providing much-needed support to its textile manufacturing base.