India-Bangladesh Garment Trade: Exploring The Impact Of Tax Exemptions

The Indian garment industry faces stiff competition from Bangladesh due to significant cost differences. Muthurathinam, President of the Tirupur Exporters and Manufacturers Association, noted that Bangladeshi are 20%-25% cheaper than Indian ones. This price gap is primarily because Bangladesh does not follow strict regulations on air and water pollution or child labour laws.

Impact of Tax Exemptions

Bangladesh's garment manufacturing sector benefits from tax exemptions on exports. "Garment manufacturing is the primary industry in Bangladesh. There are tax exemptions for importing garments from Bangladesh to any other country," Muthurathinam stated. These exemptions make Bangladeshi garments more attractive to traders globally.

In contrast, India enforces stringent regulations on pollution control and child labour, making its garments more expensive. This regulatory framework ensures ethical production but increases costs by 20%-25% compared to Bangladesh.

Challenges for Indian Manufacturers

The Indian market generates substantial revenue through domestic trade but struggles against cheaper imports from Bangladesh. The lack of import duties on Bangladeshi goods has allowed them to dominate the Indian market, adversely affecting local manufacturers.

Muthurathinam highlighted the need for government intervention: "We have been demanding control on garments imported from Bangladesh to boost domestic trade. Similarly, garments are exported from China to Bangladesh and then imported into India."

Decline in Export Incentives

The textile industry is India's second-largest sector after agriculture but lacks sufficient incentives. Previously, a 20% incentive was provided for exporting garments from India; now only 2% is given. This reduction makes it challenging for Indian manufacturers to compete with their Bangladeshi counterparts.

Muthurathinam explained: "Foreign traders have started trading in Bangladesh to avoid paying higher prices in India. China produces 34% of garments globally, while Bangladesh accounts for 12%. However, India produces only 4% despite having all necessary resources."

Need for Government Action

The central and state governments must take steps to enhance India's garment industry. Muthurathinam concluded: "The Prime Minister's resignation in Bangladesh will not benefit us because traders operate within that country's legal framework. Despite a major fire just two years ago and a worker strike last year, little has changed in this industry. Similarly, the domestic problem that has arisen will not bring any change."