How Will Bangladesh Crisis Impact Indian Textile And FMCG Industry? Study Says THIS

New Delhi: The political crisis in Bangladesh has raised serious concerns regarding trade relationship between India and the neighboring state. While Bangladesh Prime Minister Sheikh Hasina has resigned and is in the process of seeking political asylum, the country is waiting for an interim government to take over.

Bangladesh's tumultuous internal conflict has left the country's economic activities in a lurch, with a leading rating agency saying that Bangladesh crisis will have moderate impact on Indian industry.

A report by Acuité Ratings & Research Limited said that the impact of trade between both the countries might take a hit in the short term, however the overall impact on India’s trade and economy is not likely to be significant since the trade with Bangladesh (merchandise exports and imports) comprise only 1.2% of India’s aggregate trade volumes. 

"Bangladesh is a major market for Indian yarn, accounting for 25-30% of the total yarn exports. If the crisis persists for a longer period, such exports which stood at USD 1.3 bn in FY24, may be negatively impacted. This may translate to lower realizations and margins in the export markets," said the report.

However, on the positive side, there could be opportunities for Indian fabric and garment manufacturers to increase their export market share amidst the ongoing stir in Bangladesh. 

"The textile industry has become a major sector of Bangladesh’s economy, representing 80% of its exports and 15% of its GDP. The primary markets for Bangladesh textiles goods are the European Union, United States, Canada, Australia, and Japan. There can be a potential 15–20% decline in RMG exports for the next summer season (January–March 2025) due to recent disruptions and factory shutdowns. This can be both a short and a longer term opportunity for Indian garment exporters if the crisis doesn’t dissipate in a short period of period," said the report.  

The report highlighted that there could be challenges for the FMCG industry tough. "Many Indian FMCG companies have exposure to the Bangladesh market. The sector may experience some challenges, such as disruptions in supply chains, changes in consumer demand, and potential increases in costs due to the crisis. However, the overall effect will vary based on each company’s exposure, diversification, and ability to adapt to changing conditions," it added.

Suman Chowdhury, Chief Economist and Head-Research, Acuité Ratings & Research said, "While Bangladesh is an important trade partner for India, the impact of the severe political crisis there will have a very limited impact on India’s overall trade volumes. The exports to Bangladesh account for only 2.5% of India’s total merchandise exports. However, specific industry segments where exports to that country constitute a large share such as cotton yarn, may witness a material impact in the near term; on the other hand, this can also be an opportunity for Indian RMG players who had lost export markets earlier to Bangladesh."

Chowdhury added, Indian manufacturing and infrastructure companies having business or project operations or supply linkages therein are likely to witness some disruption and uncertainty in the near term.

"Importantly, the current scenario may lead to deferment or slowdown of fresh investments by Indian companies in the neighbouring country pending the establishment of a stable government. The proposed FTA with Bangladesh will also be put on the backburner under the current circumstances,” he said.