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The government has increased the cash incentive for using locally produced yarn in export-oriented garment manufacturing from 1.5% to 5%, a move expected to cost the national exchequer around Tk 35 billion. While industry stakeholders have welcomed the decision, they say the measure alone will not be enough to revive the country's struggling textile sector unless persistent problems such as gas shortages, unreliable electricity supply and liquidity constraints are addressed.
Industry entrepreneurs estimate that the higher incentive could increase domestic yarn sales by around 5%, providing temporary relief to spinning mills that have been under pressure in recent years. However, they argue that reducing dependence on imported yarn—particularly from India—will require broader policy support.
On July 12, Bangladesh Bank officially raised the incentive for exporters using locally produced yarn or fabric under the alternative cash support scheme, following a directive issued by the Ministry of Finance on July 9. The revised incentive will apply to exporters using domestic yarn during the current fiscal year.
According to the Bangladesh Textile Mills Association (BTMA), the country has more than 1,800 textile mills, including 527 spinning mills, with total investment of approximately US$23 billion. Local mills supply about 80% of the yarn used in knitwear exports and nearly 40% of the yarn required by woven garment manufacturers.
Former BTMA Director Rajib Haider said the higher incentive would encourage many small and medium-sized factories that had relied on imported Indian yarn to shift towards locally produced yarn. He believes the policy could also help reopen some idle spinning mills. However, he warned that its overall impact would remain limited if export orders continue to decline and energy shortages persist.
National Board of Revenue (NBR) data show that cotton yarn imports rose sharply after incentives were reduced in 2024. Imports increased from Tk 144.1 billion in FY2022-23 to Tk 211.42 billion in FY2023-24, reached Tk 267 billion in FY2024-25 and stood at Tk 258.64 billion in the most recently concluded fiscal year. Around 90% of imported yarn came from India.
BKMEA President Mohammad Hatem said exporters do not receive the full benefit of the announced incentive because taxes and procedural complexities reduce the effective amount. He urged the government to withdraw taxes on the incentive and simplify the disbursement process so exporters can receive the funds more quickly.
Textile manufacturers also say energy shortages remain one of their biggest operational challenges. Mosharraf Hossain, Chairman of Mosharraf Composite Textile Mills in Gazipur, said low gas pressure and frequent power outages have reduced production by about 20%, significantly increasing manufacturing costs. He added that easier access to financing is essential for many factories struggling with capital shortages.
Meanwhile, Khorshed Alam, Chairman of Little Star Spinning Mills and a BTMA director, said his company invested Tk 120 million in solar power and battery storage to cope with gas shortages. Although the investment has allowed the factory to operate at around 80% of its production capacity, manufacturing costs have increased. He noted that India provides various forms of support worth around 13% to its textile industry, and argued that Bangladesh must introduce broader policy measures—including improved energy supply, easier financing, tighter monitoring of bonded warehouse facilities and simplified import financing rules—to strengthen the competitiveness of its textile sector.
https://thedailyexpress.news/news/business/1f187d91-a38f-6770-815a-6f94e7ce4567