India’s RMG takes off. Should Bangladesh be worried? 

As Bangladesh, one of the world's largest apparel exporters, grapples with political instability and labour unrest, India's readymade garment (RMG) exports surged by 17.3% in September. 

This development carries significant implications for both countries.

According to World Trade Organization (WTO) data, Bangladesh exported garments worth $38 billion last year, making it the second-largest garment exporter after China. In comparison, India's garment exports reached $15 billion during the same period.

However, due to the ongoing crisis, Bangladesh's overall apparel exports are projected to decline by 10-20% this year, international media outlets report. 

The crisis in Bangladesh's garment sector, which began in May, was initially driven by a gas shortage caused by damage to an LNG terminal, forcing factories to operate below 30% capacity or shut down entirely. 

The situation worsened in June and July when massive student protests erupted demanding public service reforms, leading to two months of widespread demonstrations, curfews, and internet shutdowns.

Even after the fall of the Sheikh Hasina government, the RMG sector continued to face deep-rooted labour grievances and political instability. By late August, factories in industrial zones began shutting down due to a mix of worker demands and vandalism, pushing the industry further into crisis. 

The army patrolling the industrial zones helped restore some order, and several factories resumed operations. Yet, full recovery remains elusive.

India's surge in garment exports, on the other hand, is directly related to the turmoil in Bangladesh, as there has been a noticeable shift in order placements towards Indian companies. 

Infographic: TBS

A senior executive at a prominent Indian garment exporter, who wished to remain anonymous, shared with The Indian Express, "We've seen at least a 15-20% increase in export orders, particularly since June and July, following the political uncertainties in Bangladesh."

Notably, the Tiruppur knitwear hub has emerged as a major beneficiary, securing orders worth $54 million in just a short period in September.

India benefits from Bangladesh's lack of fabric production capacity, as the latter relies heavily on fabric imports from the former. Amid the crisis in Bangladesh, Indian manufacturers can provide integrated supply chains that deliver both fabric and finished garments, thereby saving valuable time.

India's young and sizable workforce, estimated at about half a billion people in the 18-35 age range, provides another significant competitive advantage, according to Soumya Bhowmick, Fellow and Lead, of World Economies and Sustainability at the Centre for New Economic Diplomacy (CNED) at Observer Research Foundation (ORF).

"This demographic edge enables India to meet the increased demand at competitive prices, making it an appealing destination for international brands seeking reliable production partners," he told The Business Standard.

"However, the sustainability of this advantage depends on India's ability to balance immediate job creation with long-term goals of increasing labour productivity, ensuring fair wages, and investing in production efficiency," Soumya added.

The US International Trade Commission (ITC) has underscored the importance of political stability in India for American consumers. 

In its recent report, the ITC noted, "Compared to less politically stable nations, brands are more inclined to source high-end or fashionable goods from India since they are sure they can manufacture and deliver their goods there."

Supporting this assessment, data from January to August of this year reveals a 1.5% year-on-year increase in apparel imports to the US, while Bangladesh experienced a 3.8% decline in export volume. In contrast, India's apparel exports to the US rose by 7.6% during the same period. 

Additionally, the US sourcing from Vietnam increased by 5.2%, from Cambodia by 7.7%, and from China by 3.6%.

Between January and July, EU garment imports also rose by 3.3%, while Bangladesh's exports grew by only 2.8%. In contrast, apparel exports to the EU from China increased by 6.4%, from India by 5.18%, from Cambodia by 18.35%, from Vietnam by 12.61%, and from Pakistan by 14.41% during the same period.

Overall, during the July-September period, Bangladesh's garment exports grew by only 5.34%, while Vietnam recorded a growth of 15.57%, and India saw a 13.45% increase, according to data compiled by the Bangladesh Garment Manufacturers and Exporters Association (BGMEA).

The data analysis revealed that garment exports from other countries outpaced Bangladesh's growth in major markets, primarily due to political instability and labour unrest.

BGMEA also estimates that Bangladesh's RMG sector suffered a production loss of around $400 million due to labour unrest, with approximately $2 billion in orders shifting to competitors like India, Pakistan, Sri Lanka, and Vietnam. This represents 5-6% of Bangladesh's total garment exports.

The unrest led to around 15 days of production losses in 400 factories.

A CareRatings report further warns that if Bangladesh's socio-political disturbances persist for another quarter, exporters may struggle to ensure timely deliveries, allowing India to potentially capture $200-250 million in additional monthly orders. 

The report suggests that with operational efficiencies and backward integration, Indian exporters could permanently claim a portion of the market currently held by Bangladesh.

And so, does the whole scenario pose a threat to Bangladesh's future in the RMG sector? 

Experts are divided. While some see India's rising exports as a significant threat, others argue that Bangladesh still holds key advantages over its competitors.

Mehdi Mahbub, an apparel business analyst who had previously expressed optimism in an Economist article last month, suggesting that the unrest was short-term and that factories were already operating again, has taken a more cautious stance while speaking to The Business Standard recently. 

"Frankly, I am becoming alarmed. The unrest in Bangladesh has persisted for several months, and India is taking full advantage of this situation. It's not just India; Vietnam has also been performing quite well lately, and Cambodia and Pakistan are emerging as strong competitors," he explained.

He added that confidence and trust are crucial factors in business decision-making. Bangladesh has built a strong reputation over the years, but if European and American buyers lose faith in the country, it will be challenging to regain their trust. 

"If you closely observe the recent plans and incentives from the Indian government, they are actively working to bolster their private sector. They are steadily positioning themselves to capture business opportunities. If the unrest continues for another quarter and opportunities keep shifting, they could certainly take over," he warned.

Soumya also noted that India is well-positioned to capitalise on the current window of opportunity. However, he emphasised that despite the present challenges, Bangladesh's RMG sector, historically resilient and a major force in global apparel exports, still has the potential to recover.

"Bangladesh must pursue financial reforms, stabilise its political landscape, and diversify its economic base beyond RMG exports to avoid prolonged macroeconomic instability," Soumya remarked.

Meanwhile, other industry insiders in Bangladesh say normalcy is returning and work orders are beginning to pick up again as the labour unrest subsides.

Shams Mahmud, managing director of Shasha Denims and former president of the Dhaka Chamber of Commerce and Industry (DCCI), argues that while Bangladesh missed some orders due to port congestion and internet blackouts during the "back-to-school" season in June, July, and August, the situation is not as dire as some portray.

"We have already recovered quite well, and we are expecting to deliver in time for the orders scheduled for December and January," he said.

He believes there is unlikely to be any long-term impact on Bangladesh's RMG sector, as the country has built a strong brand name through its well-established supply chain, backward linkages, quality products at competitive rates, and commitment to green transitions.

Shams Mahmud, however, noted that the biggest problem Bangladesh has been facing is the power crisis and gas shortage, which has been hampering production. 

"The main issue we face is the ongoing power and gas shortages, which have hindered production. If we can resolve these problems, I believe we'll regain our pre-COVID-19 strength," he added.

Abdullah Hil Rakib, senior vice president of the BGMEA, echoed similar sentiments. According to him, reports in the Indian media about surpassing Bangladesh's RMG sector are exaggerated. 

"The recent unrest is not a major issue," he remarked. "Our strength lies in our skilled workforce, high-quality products, and strong branding. These factors ensure that even amid short-term disruptions, we retain the loyalty of our long-time buyers," he noted. 

Rakib, however, acknowledged that the most pressing challenge is the unstable power supply and gas shortages, which are delaying production and raising costs. 

"To maintain our competitive edge, we must address these issues urgently. We recently met with the energy advisor to request consistent pricing, and we hope the current government will take our concerns seriously," he said.

Mahbub also called for greater government involvement in stabilising the RMG sector. He criticised the lack of coordination within the sector, noting that it operates without a central governing body. 

"There needs to be a dedicated RMG Commission or a specialised cell within the Chief Adviser's Office to oversee this vital industry," Mahbub suggested.

He further stressed that the government, not just business owners, must take responsibility for ensuring the sector's stability and future growth. 

"Our chief adviser is a globally recognised figure, and it's crucial to leverage his stature to reassure the world of Bangladesh's RMG sector's resilience," Mahbub concluded.