Bangladesh’s Signing FTA with India will Benefit the Nation
Bangladesh is one of the poorest nations in the world and natural calamities in recent times have made it even worse for the people living there. The nation does not have enough natural resources for industrial production. People live mostly on agriculture but every other year flood destroys the crop, farmers lose their livelihood
In contrast, Bangladesh has a thriving apparel manufacturing sector which accounts for more than 75% of its global export. Bangladesh exported $12.1 million during 2006-07. It is indeed a showcase of success for the country.
Can this success story be repeated in certain other sectors in Bangladesh? The answer is yes. The point is how to proceed and who should take the lead.
Despite several odds Bangladesh has become truly competitive in apparel manufacturing and this sector employs substantial number of people, many of them are women.
Since livelihood is a problem, apparel manufacturers pay extremely low wages to the employees. But Bangladeshi apparel industry is perhaps more competitive than that of India.
photo credit: James Jordan
The success model: The main reason behind the success of apparel industry in Bangladesh is availability of fabric at a lower price from India and machines were imported from India and other developed nations. It is a plug and play industry.
Textile was under the quota regime and Bangladesh used to enjoy quota free status by virtue of it being Least Developed Countries (LDC). This gave them an edge and even some Indian entrepreneurs used to divert their exports through Bangladesh. Ultimately it became a production hub for apparel.
The prevailing notion: Indian fabric becomes cheaper in Bangladesh since export does not attract duties like excise/sales tax or VAT. Thus Bangladeshi manufacturers could procure fabric at a price, lower than the procurement price of an Indian apparel manufacturer. This simple truth does not seem to have been realized in perspective by Bangladeshi entrepreneurs and the Government of Bangladesh. The Government often says if Free Trade Agreement (FTA) between India and Bangladesh is signed, the nation will be flooded with Indian goods. I would say the opposite is likely to happen.
World Bank also highlighted a similar concern in one of its reports. But it also missed one simple point – Bangladesh does not have natural resources and FTA with India will give it an access to Indian raw material and semi finished products and that too at a price lower than Indian finished goods producers can get, since Bangladeshi importers will be exempted from local duties.
The searchlight for success: Under FTA, the Government still can have the option of protecting certain sectors, which it feels important for the nation. But signing the FTA with India will allow Bangladeshi entrepreneurs to import raw material and semi finished goods at a competitive price and finish it with relatively cheaper labor in Bangladesh.
In fact many Indian industries may like to invest in Bangladesh in the event of FTA between Bangladesh and India. FTA surely would also bring the much needed foreign investment in the country.
It is time to act for the Government of Bangladesh.
Copyright ©: Consultancy Services Group.
Interesting article, adding it to my boomarks!