Bangladesh has some readymade lessons for India

When did Bangladesh’s exports overtake India?

This happened in 2006-07, when Bangladesh exported readymade garments worth $9.21 billion and Indian exports stood at $8.89 billion. In 2019-20, readymade garment exports of Bangladesh fell 18.1% to $27.95 billion, while that of India fell by 4% to $15.48 billion. As per a paper titled What explains India’s poor performance in garments exports? by Saon Ray of Indian Council for Research on International Economic Relations (ICRIER): “Bangladesh produces simple apparel such as t-shirts, shirts in bulk... While India manufactures superior quality woven and knitted products." Covid has hit low-end exports more.

How did Bangladesh become competitive?

One of the major reasons for Bangladesh’s competitiveness is that it is cheaper to produce goods in Bangladesh than in India. According to a working paper titled Automation and Future of Garment Sector Jobs: A Case Study of India written by Pankaj Vashisht and Nisha Rani of ICRIER: “The unit labour cost of producing a cotton shirt in the United States is around $7, while the unit labour cost of producing the same shirt in India comes at around 50 cents, whereas in Bangladesh the unit labour cost is only 22 cents." This gives Bangladesh a competitive advantage over the rest of the nations, including India.

What helps Bangladesh in producing cheap goods?

According to the Economic Survey of 2019-20: “Bangladesh… [has] more than 80% of market value of exports by large enterprises, India has 80% by small enterprises." Readymade garment exporters in Bangladesh, therefore, have economies of scale. Also, Bangladesh’s exports to the European Union and Canada are largely duty-free.

Why do Indian garment exporters lack scale?

As T.N.Ninan writes in The Turn of the Turtoise: “Rigid laws prevent flexibility in manning for a seasonal industry… India has only three or four garment makers with turnover in excess of $100 million." Hence, the turnaround time of Indian firms from order to delivery is 63 days. In Bangladesh, this turnaround time is far less at 50 days. Also, it takes only one day for a consignment to reach a port in Bangladesh. In India, it can take as many as 10 days for a consignment to reach a port. All such factors are barriers to creating scale.

What can India learn from  Bangladesh?

In order to increase exports of readymade garments, Indian firms will have to grow bigger. It is also worth noting that if there are more jobs in the garments sector, it will provide a working opportunity for women. Increasing employment for women leads to several benefits. As the Economic Survey of 2016-17 points out: “In Bangladesh, female education, total fertility rate, and women’s labour force participation moved positively due to expansion of the apparel sector."

Vivek Kaul is the author of Bad Money.