SOS: Textile millers seek safeguard measures to survive

Highlights:

• Textile millers are seeking urgent government support to prevent sector collapse
• Nearly 58 spinning and dyeing mills have partially or fully shut down
• BTMA requests that for 5 years, mills producing yarn receive 10% special incentive on local yarn sales
• BTMA president says over 1 lakh workers already unemployed; number could rise if situation continues

Textile millers, who once aimed to be the strong backward linkage for Bangladesh's growing garment industry, are now seeking urgent government support, including a 10% special incentive and safeguard duties on yarn imports, to rescue the sector, which they say is on the brink of collapse.

With more than $23 billion invested over the past three decades, the sector expanded its capacity, achieving nearly 100% for cotton-based knit yarn and 80% for woven yarn, establishing itself as a vital supplier for the ready-made garment industry.

However, over the past year, conditions have steadily deteriorated, a trend that has intensified over the last three months, according to the Bangladesh Textile Mills Association (BTMA). 

Nearly 58 spinning and dyeing mills have partially or fully shut down. Some mills have tried to survive by renting factories, but even these are now operating only partially, said the association.

To save the sector, industry representatives this month began urgent discussions with the commerce, finance ministries, and the National Board of Revenue (NBR), as well as other government agencies.

BTMA President Showkat Aziz Russell has sent letters to various ministries and departments in phases this month, explaining the sector's plight. 

One such letter, addressed to the commerce ministry – a copy obtained by The Business Standard – outlines the industry's current crisis, its causes, and calls for immediate government intervention.

Russell told TBS, "According to notices we have received, 58 textile mills of our members have already closed, leaving more than 1 lakh workers unemployed."

Request for incentive, import duty

In the letter to the commerce ministry, BTMA requested that for the next five years, mills producing yarn in Bangladesh receive a 10% special incentive on local yarn sales, up from the current 1.5%. 

The letter also proposed a mandatory minimum purchase of 50% locally produced yarn for export purposes from domestic mills. In addition, textile mill owners have called for the temporary imposition of a safeguard duty on cotton yarn imports.

These proposals were discussed on Thursday between mill owners and the commerce secretary.

Saleudh Zaman Khan, vice president of BTMA, who attended the meeting, told The Business Standard, "To protect the country's textile sector, we discussed three options: a 10% special incentive on yarn sales, mandatory purchase of local yarn, or imposing a safeguard duty on imports."

He added, "Imposing a safeguard duty would require legal changes, and we are in discussions with all relevant government authorities."

When contacted, commerce secretary Mahbubur Rahman told TBS, "We are reviewing the matter," declining further comment.

Falling demand forces stockpiling

Conversations with at least eight local spinning mill owners reveal that continuous reductions in government incentives, rising production costs, and increasing support for competitors from the Indian government are putting Bangladesh's mills at a disadvantage.

The situation is further compounded by duty-free yarn and fabric imported under bonded export schemes being sold in the local market, as well as illicit imports. This has left not only exporters but also domestic spinning mills struggling.

Global garment exports have declined over the past four months, further reducing local demand. As a result, many spinning mill owners are forced to sell at a loss.

Khorshed Alam, chairman of Little Star Spinning Mills, said, "With falling yarn demand, we no longer have space to store it in our warehouses. We have had to cut production by 30% compared to normal levels, and some staff reductions were unavoidable."

He warned, "If this situation continues, at least 50% of mills could shut down by November 2026. It will be impossible to keep them running."

Hossain Mehmood, vice chairman of Anwar Group of Industries, a leading yarn exporter, told TBS, "There is no room to store yarn in our own warehouses due to falling demand. We are now forced to rent external storage facilities."

Forced to sell at loss, govt loses revenue

A spinning mill owner, speaking on condition of anonymity, said that since February, the price of 53-count yarn in the local market has fallen by Tk60 per kilogram, resulting in a net loss of Tk41 per kilogram for the mill. In November alone, the mill's net loss reached Tk1.8 crore.

The losses are not limited to the millers. Government revenue has also declined due to lower sales. Currently, VAT of Tk5 per kilogram is levied on yarn sold in the local market. Last October, the mill paid Tk15 lakh in VAT, which dropped to Tk8 lakh in November, reflecting the decline in sales.

Bangladesh cuts support, while India increases

Industry sources said investment in Bangladesh's textile sector began in the 1990s and gained momentum from 2005. Over the past two decades, investment focused on building a strong backward linkage industry to support the ready-made garment sector. This strategy has largely succeeded, thanks to various government policy supports.

Initially, local spinning mills received a 25% incentive on domestic yarn sales, introduced by former finance minister Saifur Rahman. Over time, this was gradually reduced to 1.5%. VAT, which was previously absent on local sales, has now risen to 5%. Meanwhile, utility prices have increased, bank interest rates have risen, currency devaluation has reduced bank funding, and EDF funds have contracted.

Showkat Aziz Russell said, "Production costs in the textile sector have risen by nearly 20%. Depreciation of the currency, shortfalls in working capital, rising bank interest rates from 9% to 16%, and sharp reductions in cash incentives for exports have further strained the sector."

Saleudh Zaman Khan added, "While Bangladesh is cutting one policy support after another, India continues to roll out new incentives."

Indian yarn producers and exporters benefit from a range of direct and indirect support, including cash-back under the RoDTEP scheme, state-level wage subsidies, and capital investment support. These measures provide an effective advantage of around $0.30 per kilogram, allowing Indian exporters to sell yarn in Bangladesh at lower prices.

Dumping by India, safeguard duty

The BTMA claims that Indian spinning mill owners are selling yarn in the Bangladeshi market at prices lower than those of local mills.

BTMA president Showkat Aziz Russell said, "Indian mills receive additional support of around $0.30 per kilogram for exports through various government incentives. As a result, they export yarn to Bangladesh at $2.50-2.60 per kilogram, nearly equal to or below their production costs, while the same 30-count yarn sells for $2.85 or 250 rupees in India."

"This is gradually pushing our mills towards collapse," he added, noting that the matter has been communicated to all relevant government authorities.

BTMA also reported that over the past year, yarn imports from India have surged by 48%. Bangladesh has now become the largest market for Indian yarn, accounting for 46% of India's total yarn exports.

Jobs of 20 lakh at risk

According to BTMA, Bangladesh's textile sector directly employs around 20 lakh workers. In 2022 and 2023, the organisation had projected an additional $3 billion in new investment for the sector. However, industry insiders say that following the downturn in 2024, most of this investment has not materialised.

BTMA's president said that under the current conditions, no new investment is likely. 

"If the government doesn't provide incentives to keep the sector afloat, these mills will close, and import dependency will return," he warned. "More than 1 lakh workers are already unemployed, and this number will rise if the situation continues."

BTMA data shows that the sector comprises over 1,800 mills across spinning, weaving, dyeing, printing, and finishing, including 527 yarn-manufacturing units.