Can India capitalize on ’Bangladesh Plus One’?

The turmoil in Bangladesh may open up a higher growth opportunity for Indian textiles on the world stage, according to experts and Indian textile companies. Bangladesh, the second-biggest exporter of textiles after China, might now struggle to keep this going. 

At the same time, it won't be a straightforward swap, as India will have to increase its capacity and also compete with other countries in the so-called ‘Bangladesh-plus-one’ drive.

According to data from export-import data provider EximPedia, the global clothing industry was valued at over $1.5 trillion in 2022. China led the pecking order with $182 billion of exports, followed by Bangladesh with $45 billion. India, at $18 billion of textile exports, stood fifth, with Vietnam and Turkey also ranked higher. 

“The (Bangladesh) situation presents a promising medium-term opportunity for India’s garment sector as global brands might look to diversify from Bangladesh," said Kulin Lalbhai, vice chairman of Arvind Ltd.

Bharat Birla, director at Anand Rathi Investment Banking, believes that if the crisis continues, India can expect a 10-15% gain in the short to medium term on garment exports.

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Apparel manufacturer Gokaldas Exports Ltd, too, said in its June quarter investor presentation that buyers are seeking alternate production bases outside China, creating opportunities for major Asian suppliers like India.

According to Prerna Jhunjhunwala, vice president and research analyst for textiles and retail at Elara Capital, global customers may not fully replace Bangladesh or find alternative capacity immediately, but they might still look for alternatives to avoid large additional business with the crisis-struck nation to reduce further dependence.

The shift in orders to India could spark growth in cities with strong textile manufacturing hubs.

According to Birla, cities like Surat in Gujarat, Tiruppur in Tamil Nadu, Ilkal in Karnataka, and Chanderi in Madhya Pradesh stand to gain as they are well-positioned to absorb displaced orders thanks to their deep-rooted expertise in the textile industry.

"Whenever there is a political or any kind of uncertainty, people think of shifting to a stable market like us,” Amit Agarwal, chief financial officer of Raymond, told Mint recently. “Previously, global brands had our fabric sent to Bangladesh for stitching. So now a portion of that can easily come to us very quickly.” 

That said, the big question is about scalability to meet global demand.

Can India replace Bangladesh?

Market participants believe India will need to invest in expanding its garment manufacturing capabilities to take advantage of the turmoil in its eastern neighbour. 

Lalbhai said that measures like a potential free trade agreement (FTA) with Europe and production-linked incentives for cotton-based garments could speed up capacity expansion in India.

Some note that setting up a new plant or facility and scaling up to the required level roughly takes around three to five years, and that makes it challenging to achieve an immediate boost in capacity.

Additionally, boosting capacity to meet demand might result in higher overall production costs.

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The wider belief is that if the issues in Bangladesh persist, India may gain by adding capacity. This would allow for longer-term gains, as customers would look to diversify from Bangladesh.

“It is our belief that the situation in Bangladesh is not expected to normalize for at least a span of six to eight months until the conclusion of the next general elections, which are required to be conducted within 90 days of dissolution of the government,” said Birla of Anand Rathi Investment Banking.

Jhunjhunwala of Elara Capital believes that, in the long run, India could enhance its market share as global brands seek to lessen their reliance on Bangladesh.

However, she added that India isn't the only option for global companies. “Customers will also explore near-shoring options like Latin America and Mexico along with Asian suppliers like India, Vietnam, Cambodia, Sri Lanka and Indonesia, among others.”

India-Bangladesh trade

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 deparment of commerce, India's exports to Bangladesh fell 9.41% from $12.21 billion in FY23 to $11.06 billion in FY24. Imports, too, fell 8.73% from $2.02 billion in FY23 to $1.84 billion in FY24.

Bangladesh has also become a key manufacturing hub for many Indian textile firms.

With ongoing uncertainties because of the turmoil in Bangladesh, Indian companies operating there might face production slowdowns or shortages, pushing them to explore alternative manufacturing options.

And read | Bangladesh crisis could boost India's ready-made garment exports: CareEdge

As a matter of fact, Indian yarn and fabric suppliers to Bangladesh might face some short-term payment delays, according to Jhunjhunwala of Elara Capital.

Neeraj Jain, joint managing director of Vardhman Textiles Ltd, said in its recent earnings call on 1 August that, as of now, there is no impact on the demand. “But unless it is resolved or it continues for a long period, then there could be a concern. But as of now, there doesn't seem to be an issue.”

Nehal Chaliawala in Mumbai contributed to this story.