The textile industry, a cornerstone of Bangladesh's economy, faces a critical juncture requiring immediate action from the interim government. Led by Nobel Laureate Professor Muhammad Yunus, this government has a unique opportunity to implement transformative reforms that can prevent the collapse of this $32 billion industry. The textile sector, which supplies raw materials for the export-driven ready-made garments (RMG) sector, plays a vital role in meeting domestic clothing demand while contributing significantly to the country's foreign exchange reserves. Without prompt and strategic intervention, the collapse of this industry would severely weaken Bangladesh's economic independence and worsen the trade deficit.
One key area of reform is local sourcing. Currently, a significant portion of fabrics used in Bangladesh's garment industry is imported, which puts immense pressure on foreign exchange reserves. To mitigate this, RMG exporters should prioritize sourcing at least 50 per cent of their fabrics and 75 per cent of yarns for knitwear exports from local manufacturers. Local textile mills, equipped with advanced machinery from Switzerland, Germany, Italy, and Japan, produce high-quality fabrics that meet international standards. Incorporating these fabrics into RMG exports will reduce dependency on imports, conserve foreign currency, and enhance Bangladesh's competitiveness in the global market.
Incentivizing this transition requires government support through policies that make local sourcing more attractive. Reducing duties on textile-related imports, along with lowering power and gas prices, will enable local manufacturers to compete with fabric producers in countries like Vietnam, Pakistan, and China. Buyers often cite cost as a primary reason for preferring imported fabrics. Addressing this concern by lowering production costs is essential to making Bangladeshi fabrics a preferred choice for both domestic and international buyers. Nobel Laureate Professor Muhammad Yunus emphasized the importance of empowering local industries during a recent address, stating, "Economic independence can only be achieved when local industries are empowered to thrive. We must reduce our reliance on imports and focus on building strong, competitive domestic industries."
Tackling corruption and inefficiencies in the energy sector is another critical aspect of stabilizing the textile industry. Corruption within gas and power transmission systems has resulted in significant financial losses, driving up production costs for textile manufacturers. To ensure affordable energy for the textile sector, the interim government must prioritize eliminating these inefficiencies. One solution is to deploy the military to oversee the transmission and distribution of gas and power for 18 months. This measure could restore order in a sector plagued by pilferage and corruption. Savings from reduced system losses could then be reinvested into the textile industry, helping to lower production costs and making local products more competitive globally.
Equalizing gas prices between the textile industry and Independent Power Producers (IPPs) is also essential. Currently, IPPs enjoy a gas price of Tk 14.75 per cubic meter, while textile manufacturers pay Tk 31 per cubic meter-more than double the rate. This price disparity burdens the textile sector, increasing production costs and reducing competitiveness. Equalizing gas prices would lower production costs for textile manufacturers, enabling them to offer fabrics and yarns at prices competitive with imports.
Strengthening oversight of bonded warehouses is equally crucial. Many garment exporters exploit duty-free import provisions by inflating their export orders and diverting excess materials into the local market. This practice undermines local textile manufacturers who operate under fair conditions. The interim government must enhance oversight of bonded warehouse facilities, from importation at Chittagong port to final production and shipment, to prevent misuse and protect domestic producers. Addressing this issue will create a level playing field for local textile manufacturers.
Smuggling through border bazaars and other illegal routes poses another significant threat to Bangladesh's textile industry. An estimated $2.1billion fabrics enter the county illegally enter the country every year flooding the market without paying duties. These untaxed goods not only undercut legitimate businesses but also deprive the government of critical revenue. The interim government must enhance border controls and crack down on smuggling to protect the domestic textile market. Investigating the frequency and purpose of trips to India by suspected smugglers and implementing tighter regulations on cross-border travel will help curb illegal imports. These efforts will bolster the domestic textile industry and increase government revenue.
In addition to combating illegal imports, the interim government should introduce targeted tax relief to support the textile sector. Granting a temporary VAT exemption for all domestic textile mills for 18 months would reduce production costs and make locally produced fabrics and yarns more competitive with imports. This measure would provide the industry with the breathing space it needs to recover and stimulate local demand. Establishing a yarn testing laboratory at customs checkpoints is another critical reform. Some importers declare lower-count yarns to reduce their duty payments while importing higher-count, more expensive yarns. This practice cheats the government of revenue and creates unfair competition. A laboratory capable of accurately testing yarn counts would prevent this form of tax evasion, ensuring that duties are paid appropriately and that local producers are protected.
The interim government has a unique opportunity to implement bold reforms that can revitalize Bangladesh's textile industry. By addressing corruption, reducing energy costs, curbing illegal imports, and providing targeted tax relief, the government can stabilize the sector, protect jobs, and ensure continued growth. These reforms will safeguard the textile industry and contribute to broader economic stability in Bangladesh. Professor Yunus's leadership offers hope for a brighter future, but the time for decisive action is now. Failure to act could lead to the collapse of a critical industry, with far-reaching consequences for the entire nation. The writer is chairman of Little Group and a director of Bangladesh Textile Mills Association
