Textile mill shutdown threat raises alarm over RMG exports ahead of polls
The commerce secretary noted that multiple stakeholders are involved – including the government, textile mill owners and garment manufacturers – and said their concerns would need to be carefully balanced
As textile millers and garment exporters remain locked in a bitter dispute over duty-free yarn imports – and the Bangladesh Textile Mills Association (BTMA) has announced an indefinite shutdown of mills – the government is scrambling to avert a potential disruption to RMG exports, which account for about 85% of Bangladesh's total export earnings.
Commerce Secretary Mahbubur Rahman told The Business Standard yesterday that the government recognises the seriousness of the crisis and is exploring possible options.
"The textile industry is facing problems, no doubt. Something has to be done," he said. "We are thinking about what alternatives are possible."
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Describing the issue as complex, he added, "We must find a way out. We will try to come up with a solution as quickly as possible."
The commerce secretary noted that multiple stakeholders are involved – including the government, textile mill owners and garment manufacturers – and said their concerns would need to be carefully balanced. However, he did not specify what options were under active consideration.
Shutdown threat ahead of polls
Meanwhile, textile mill owners have threatened to shut down factories from 1 February, citing what they describe as prolonged government inaction in protecting the $23 billion textile industry. The announcement comes at a sensitive time, less than two weeks before the national election scheduled for 12 February.
BTMA President Showkat Aziz Russell formally announced the decision yesterday.
"This is not a threat. The sector will shut down anyway," he said. "This is a crisis, a national crisis."
Russell criticised the pace of policymaking, saying, "In any situation, India can make a decision within a few hours, whereas our government cannot do so even in months."
He also alleged that while the government provides various incentives to the garment sector, textile mill owners do not benefit from them. Instead, he claimed, most of the gains flow to foreign buyers.
According to Russell, under the open costing method any increase in production costs is ultimately passed on to buyers. However, if domestic textile mills collapse, garment manufacturers will be forced to import yarn from India at higher prices in the long run, eroding competitiveness.
Risks to workers, banks and exports
Industry insiders warned that an actual shutdown of textile mills would have far-reaching consequences. More than 10 lakh workers employed in the sector could face uncertainty over wages and benefits, potentially triggering labour unrest.
A halt in yarn production would disrupt the garments supply chain, while difficulties in repaying bank loans could push non-performing loans (NPLs even higher at a time when banks are already under pressure, with NPLs estimated at around 35%.
Economists warn that large-scale closures in the textile sector could add further strain to an economy already grappling with multiple challenges.
Against this backdrop, experts have urged the government to act swiftly to reach an acceptable solution that balances the interests of yarn-producing textile mills and garment exporters.
How the dispute escalated
The conflict intensified after the Ministry of Commerce, responding to a letter from the Bangladesh Trade and Tariff Commission (BTTC), wrote to the National Board of Revenue on 12 January seeking the withdrawal of the existing duty-free yarn import facility under bonded licences.
Garment exporters strongly opposed the move, warning of "tough action" and describing the withdrawal of the facility as "suicidal" for the export-oriented apparel sector.
Amid the backlash, the commerce ministry appeared to step back from its position. Textile mill owners later met the finance adviser on Wednesday, seeking the immediate issuance of an order withdrawing the bonded facility for yarn imports, but received no clear response.
In frustration, BTMA held what it described as an "emergency press conference" yesterday to reiterate its shutdown stance.
"The apparel sector contributes 13% to the country's GDP, yet policymakers do not even allocate 13 minutes for the sector's people," Russell said. "Every department is simply passing responsibility to others, like a game of pillow passing."
Reiterating the shutdown threat, he added, "We will shut down no matter what. We do not have the capacity to repay bank loans. Our capital has been reduced by half."
BTMA leaders said mill owners have repeatedly sought either the withdrawal of the bonded facility for yarn imports from India or the introduction of special cash incentives to help the sector survive.
Potential fallout of textile mill shutdowns
Around 10 lakh workers are employed in Bangladesh's textile sector. If these factories are shut down from 1 February, just ahead of the national election, the payment of workers' wages will become uncertain before the polls, potentially triggering labour unrest.
Speaking to The Business Standard after the press conference, Showkat Aziz said, "If mills are shut down, workers will resort to vandalism at factories to demand their wages."
He said textile entrepreneurs are deeply intertwined with the sector. "Textiles are not our only business. We expanded our other businesses around this industry. If textile mills shut down, everything else will also struggle," he said, adding that NPLs would inevitably rise.
"We would survive only if we could exit this business," he added.
Professor Mustafizur Rahman, distinguished fellow at the Centre for Policy Dialogue (CPD), said textile mill closures would not only fuel labour unrest but also disrupt raw material supplies for garment exports, while increasing import dependence.
"If large, capital-intensive mills shut down and fail to repay loans, NPLs will rise further," he warned.
Experts suggest alternatives
Dr Mostafa Abid Khan, an international trade expert and former member of the BTTC, said withdrawing bonded facilities would hurt garment exports, but stressed that spinning mills must be sustained as an import-substituting backward linkage industry.
"Any decision must be taken through consultations with all stakeholders and in compliance with World Trade Organization rules," he said, adding that a mechanism should be developed to support spinning mills so they remain competitive.
Mustafizur Rahman said there is no obligation to protect textile mills by withdrawing bonded facilities for garment exporters.
"In line with LDC rules, limited cash compensation or special loan facilities could be provided for a specific period," he said.
He also suggested initiating anti-dumping investigations against India if evidence shows yarn is being exported to Bangladesh at unfairly low prices, which could justify the imposition of duties. Alternatively, import quotas could be considered.
Addressing concerns about WTO violations, he noted that no country has taken to dispute settlement over such measures during LDC status or within three years of graduation, making the risk relatively low.
Yarn import trends
In FY25, Bangladesh imported yarn worth about Tk26,000 crore – more than $2 billion – with over 80% sourced from India. Yarn imports from India have more than doubled over the past three years.
Local entrepreneurs claim Indian government incentives allow exporters to sell yarn to Bangladesh at prices roughly $0.30 lower than domestic prices, leaving local mills unable to compete. As a result, stocks have piled up and some factories are operating at only half their installed capacity.
However, Fazlee Shamim Ehsan, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA), disputed claims of a continuous rise in imports.
"From July to December, imports declined compared to the same period of the previous fiscal year, mainly because garment exports have fallen," he said.
He argued that the core issue is declining competitiveness in the domestic textile sector.
"We all agree the textile sector needs protection," he said. "But it cannot come at the cost of harming garment exporters. If India supports its industry, Bangladesh can consider similar support if necessary."
BGMEA Acting President Salim echoed those concerns last week, warning that blocking imports could create a monopoly, as local mills cannot supply all yarn types, particularly premium varieties.
He said exporters would prefer local sourcing if mills could ensure timely delivery and competitive pricing, and urged the government to support spinning mills through productivity upgrades, incentives and uninterrupted energy supply.
