In a development that has sent ripples of concern through India's textile industry, Bangladesh is actively considering the imposition of a significant safeguard tariff on key imports from its neighbour. The proposed 20% duty targets cotton yarn, blended yarn, and grey melange sourced from India, a move that could severely impact manufacturing hubs like Vidarbha in Maharashtra.
The Tariff Proposal and Its Immediate Context
The lobbying effort from Bangladesh's textile sector gained formal traction in a meeting convened on January 5. A note circulated by a foreign trade research officer in Bangladesh to the country's trade and tariff commission, commerce secretary, and the textile mills association explicitly suggested slapping the safeguard duty on Indian cotton. While the final outcome of that meeting remains unknown, the note's contents have gone viral within Indian industry circles, sparking immediate worry.
This potential trade barrier emerges at a sensitive time for India's domestic cotton policy. The Indian government re-imposed an 11% duty on raw cotton imports from January 1. This duty had been lifted in August last year following tariff tensions with the US but was not extended beyond December 31, despite industry lobbying. Its return has already pushed domestic cotton prices upward, with the best-grade cotton touching the government's Minimum Support Price (MSP) of Rs 8,110 per quintal in private markets within a week.
A Double Blow for Vidarbha and Indian Textiles
The proposed Bangladeshi tariff is seen as a potential double whammy for the Indian textile ecosystem. First, costlier domestic cotton due to the re-imposed import duty squeezes margins for Indian mills. Second, a new export barrier in a key market like Bangladesh would hit outward shipments hard.
The threat is particularly acute for the Vidarbha region, a significant yarn production centre. Prashant Mohta, Managing Director of Gima Tex Limited and President of the Vidarbha Industries Association (VIA), highlighted the scale of exposure. He revealed that a substantial 30% of the monthly yarn production in Vidarbha, amounting to roughly 3,000 tons, is exported to Bangladesh. With around 45 dedicated yarn production units in Vidarbha alone, a duty-induced drop in demand could lead to a crash in yarn prices domestically, further depressing cotton prices and affecting farmers' realisations.
Industry players fear that losing competitive edge in Bangladesh would not only hurt exporters but also indirectly impact the rates farmers get for their raw cotton. Adding to the complexity is the fact that India allows duty-free imports of Bangladeshi apparel, creating a trade asymmetry that the sector finds concerning.
Root Cause: Duty-Free Misuse in Bangladesh
The demand for the safeguard duty in Bangladesh reportedly stems from a malpractice uncovered by its own authorities. Certain licensed Bangladeshi importers are permitted to bring in duty-free yarn from India only on the condition that it is used to manufacture garments for export. However, an investigation found that some industries were diverting this duty-free cotton to produce garments for sale in the domestic Bangladeshi market. This misuse disrupted local trade dynamics and directly fueled the call for imposing a blanket duty on imports from India, according to sources familiar with the matter.
The coming weeks are critical as stakeholders await Bangladesh's official decision. For India's textile industry, especially in regions like Vidarbha, the outcome will determine whether they face a protected market next door or navigate a new, costly barrier to their second-largest export destination.
