With GST, Bangladesh enters Indian garments market

Bangladesh has started making inroads in India’s readymade garments (RMG) market, due to manufacturing cost advantages there after implementation here of the Goods and Services Tax (GST).

The over-arching tax was implemented in India from July 1. And, import of RMG from Bangladesh jumped 56 per cent to $87.4 million from then to November over the corresponding period last year. Of this, import of knitted apparel surged 69 per cent to $30.1 mn. Import of woven apparel contributed the rest, $57.3 mn, from $38.1 mn in the same period last year.

In terms of volume and market size, overall import from Bangladesh isn't so much. However, the fast increase poses a threat for Indian manufacture. The effective protectionist duty on import from Bangladesh during the pre-GST regime ended with the new tax. For, the cost of production at Bangladesh manufacturers provides them an advantage.

“We have written to the government, seeking changes in the provisions,” said Sanjay Jain, chairman, Confederation of Indian Textile Industry. Garment makers in Bangladesh, says the industry, procure fabric from China duty-free. Their two other basic advantages over Indian manufacturers are cheaper electricity and cheaper labour. Indian garment makers have to pay 20 per cent import duty for the same fabric from China; their power and personnel costs are also higher.

“We have taken a number of steps, including a ~6,000 crore special package, technology upgradation funds, etc, to make cost of manufacturing garments in India competitive,” said a senior government official.

Industry sources say many RMG retailers in the organised sector have started procuring from Bangladesh in a big way.

“In the pre-GST regime, the government had protected domestic garment manufacturers through levy of countervailing duty on import, equivalent to the excise duty on domestically manufactured garments, in addition to education cess. This protection has gone away after GST implementation. With the current regulations, Bangladeshi garment manufacturers get 10-15 per cent of cost advantage over production in India. This needs to be addressed immediately,” said Rahul Mehta, president, Clothing Manufacturers Association of India.