The recent political unrest in Bangladesh, the world’s second-largest textile exporter after China, has sparked discussions about its potential impact on the global textile industry. Experts and Indian textile companies believe that this turmoil could create a significant opportunity for India to expand its presence on the world stage. However, the transition won’t be seamless, as India needs to boost its manufacturing capacity and compete with other countries vying for the same market share.
According to EximPedia, the global clothing industry was valued at over $1.5 trillion in 2022. China holds the top spot with $182 billion in exports, followed by Bangladesh with $45 billion. India stands at fifth place with $18 billion in textile exports, trailing behind Vietnam and Turkey. The current situation in Bangladesh presents a unique opportunity for India’s garment sector, as global brands may consider diversifying their supply chains to mitigate risk. Kulin Lalbhai, vice chairman of Arvind Ltd., highlights this potential, suggesting that global brands might seek alternative sources of production. Bharat Birla, director at Anand Rathi Investment Banking, predicts a 10-15% gain in India’s garment exports in the short to medium term if the crisis in Bangladesh persists.
Apparel manufacturer Gokaldas Exports Ltd. echoes this sentiment, stating in its June quarter investor presentation that buyers are actively searching for alternative production sites, opening doors for major Asian suppliers like India. While global customers might not immediately fully replace Bangladesh or find alternative capacity, Prerna Jhunjhunwala, vice president and research analyst for textiles and retail at Elara Capital, believes they will explore alternative options to reduce dependence on the crisis-stricken nation. This shift in orders towards India could fuel growth in cities with established textile manufacturing hubs. Birla highlights cities like Surat in Gujarat, Tiruppur in Tamil Nadu, Ilkal in Karnataka, and Chanderi in Madhya Pradesh as well-positioned to absorb displaced orders due to their deep expertise in the textile industry. Amit Agarwal, chief financial officer of Raymond, emphasizes India’s stability as a key factor, stating, “Whenever there is a political or any kind of uncertainty, people think of shifting to a stable market like us.” He also notes that previously, global brands would send fabric to Bangladesh for stitching, but now a portion of that work could easily be redirected to India.
However, the critical question lies in India’s ability to scale up production to meet the global demand. Market participants acknowledge that India must invest in expanding its garment manufacturing capabilities to capitalize on this opportunity. Lalbhai suggests that measures like a potential free trade agreement (FTA) with Europe and production-linked incentives for cotton-based garments could accelerate capacity expansion in India. It’s crucial to note that setting up new facilities and scaling production to the required level takes approximately three to five years, making it challenging to achieve an immediate boost in capacity. Moreover, expanding production to meet demand might lead to increased overall production costs.
Despite these challenges, the prevailing belief is that if the issues in Bangladesh persist, India will gain a competitive edge by adding capacity. This would enable long-term gains, as customers seek to diversify their supply chains away from Bangladesh. Birla of Anand Rathi Investment Banking anticipates that the situation in Bangladesh may not normalize for at least six to eight months, until the next general elections are held. Jhunjhunwala of Elara Capital believes that, in the long run, India could significantly increase its market share as global brands strive to reduce their dependence on Bangladesh. However, she emphasizes that India isn’t the only option for global companies. Customers will also consider near-shoring options like Latin America and Mexico, along with other Asian suppliers such as Vietnam, Cambodia, Sri Lanka, and Indonesia.
Beyond the potential gains, the turmoil in Bangladesh also impacts India-Bangladesh trade relations. India maintains substantial trade ties with Bangladesh, particularly in textiles and apparel, both as an importer and exporter of products and raw materials. According to data from the Department of Commerce, India’s exports to Bangladesh fell 9.41% from $12.21 billion in FY23 to $11.06 billion in FY24. Imports also declined by 8.73%, from $2.02 billion in FY23 to $1.84 billion in FY24. Bangladesh has emerged as a key manufacturing hub for numerous Indian textile firms. The ongoing uncertainties due to the turmoil in Bangladesh could lead to production slowdowns or shortages for Indian companies operating there, pushing them to explore alternative manufacturing options.
Furthermore, Indian yarn and fabric suppliers to Bangladesh might face short-term payment delays. Neeraj Jain, joint managing director of Vardhman Textiles Ltd., stated in a recent earnings call that, as of now, there has been no impact on demand. However, he acknowledges that prolonged instability in Bangladesh could raise concerns. The current situation highlights the intricate web of trade relations between India and Bangladesh, and the potential ramifications of political instability on both economies.
