Bangladesh’s textile millers have urged the government to retain the 30 percent value-addition requirement in the readymade garment (RMG) sector, warning that scrapping the rule could accelerate subsidised imports and deepen stress in the country’s primary textile industry.
The Bangladesh Textile Mills Association (BTMA) has opposed a proposal in the draft fiscal year 2026–27 budget to remove the condition requiring garment exporters to ensure at least 30 percent local value addition when importing raw materials such as yarn under bonded warehouse facilities.
Industry leaders say the rule has long supported backward linkage industries—spinning, weaving and dyeing—by ensuring a minimum level of domestic sourcing. Its removal, they argue, would shift demand further toward imported inputs, particularly from India, where producers benefit from extensive government support.
Comparative data illustrate a widening imbalance between domestic production and imports. Bangladesh’s primary textile sector has attracted around $23 billion in investment and remains a key pillar of the country’s $40 billion-plus apparel export industry. However, the sector is under increasing strain.
According to BTMA data, 114 out of 234 spinning mills have shut down since 2019, while the remaining mills are operating at only 60 to 70 percent capacity due to gas shortages, rising costs and declining demand.
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At the same time, imports of Indian cotton yarn have surged significantly. In fiscal year 2024–25, imports rose 22.07 percent year-on-year to $1.79 billion, with volumes reaching 556.12 million kilograms. This compares with $1.48 billion and 455.57 million kilograms in FY2023–24, reflecting steady growth in reliance on imported yarn.
Millers say this trend is being driven not only by price sensitivity among garment exporters but also by the structural cost advantage enjoyed by Indian producers through state-backed incentives.
According to BTMA, Indian yarn manufacturers benefit from multiple layers of government support, including a 15 percent capital investment subsidy, an 8 percent interest subsidy on financing, infrastructure support, and an additional 15 percent assistance for technology upgradation and modernisation. These incentives significantly reduce production costs and enable Indian suppliers to offer yarn at prices often lower than those of Bangladeshi mills.
By contrast, local manufacturers face higher borrowing costs—often between 9 and 12 percent—alongside elevated energy tariffs and limited policy support, creating a widening competitiveness gap.
“If the 30 percent value-addition requirement is withdrawn, the market will be flooded with cheaper, subsidised yarn, putting domestic mills at serious risk,” said BTMA President Showkat Aziz Russell.
He warned that the move could jeopardise existing investments and accelerate mill closures, undermining the country’s industrial base. The association also cautioned that excessive reliance on imports could expose Bangladesh to supply disruptions.
Russell cited a recent instance in which Indian exporters diverted shipments to China, leading to shortages and price increases for Bangladeshi buyers, highlighting the risks of dependency on external suppliers.
The debate comes at a critical time as Bangladesh prepares to graduate from Least Developed Country (LDC) status. Industry stakeholders stress that maintaining strong domestic value addition will be essential to meet stricter rules-of-origin requirements in key export markets, particularly in the European Union.
BTMA estimates that Bangladesh could face export losses of up to $17.5 billion post-LDC graduation if it fails to strengthen local value addition and supply chain integration.
The proposed policy change has also exposed a divide within the apparel sector. While garment exporters often favour cheaper imports to remain competitive in global markets, textile millers argue that weakening domestic supply chains could erode Bangladesh’s integrated manufacturing advantage.
Analysts say the current data present a stark contrast: declining capacity utilisation and rising closures in domestic mills versus a rapid increase in imports supported by foreign subsidies.
In addition to retaining the value-addition rule, BTMA has called for policy support measures, including reducing the corporate tax rate for textile mills to 12 percent from the current 27.5 percent, maintaining the rate until 2030, and removing duties on key raw materials.
Government officials say the proposed reform is intended to simplify trade procedures and improve ease of doing business. However, industry experts caution that policy changes must balance short-term cost competitiveness with long-term industrial sustainability.
“The issue is not just about import flexibility—it is about preserving Bangladesh’s textile backbone,” said an industry analyst.
As policymakers deliberate, the decision on the 30 percent value-addition rule is expected to have far-reaching implications for the country’s textile and apparel sector, determining whether Bangladesh strengthens its domestic manufacturing base or becomes increasingly dependent on subsidised imports.
