The yarn market in Bangladesh has been facing a prolonged crisis in recent years. Despite having a textile industry valued at approximately USD 23 billion, import dependency is gradually increasing due to price competitiveness compared with local procurement. As a result, local spinning industries are struggling to generate sufficient revenue. In many cases, they are compelled to sell yarn at break-even prices just to ease cash flow crises.
Currently, local manufacturers sell yarn at a price roughly USD 0.30 per kg higher than imported alternatives. For instance, the import price of 30-count yarn is around USD 2.65-2.70 per kg, while the local price ranges from USD 2.95-3.00 per kg. This price gap significantly affects the cost of goods sold (COGS) for garment manufacturers, prompting them to prefer imported yarn over locally sourced products.
In India, several initiatives have strengthened the yarn industry, such as reducing utility costs through subsidies and offering cash incentives to promote growth. In contrast, the situation in Bangladesh is quite adverse. The cash incentive has been reduced from 4 per cent to 1 per cent, while a 2 per cent advance income tax (AIT) has been imposed on raw cotton imports, alongside a 67 per cent value-added tax (VAT) on locally produced yarn. Consequently, the local yarn industry is losing competitiveness, and rising utility costs are further exacerbating manufacturing challenges.
To ensure sustainability and cost efficiency, the ready-made garments (RMG) sector is increasingly sourcing yarn from India. This has resulted in a large stockpile of unsold yarn in local warehouses, creating serious storage challenges. Many local manufacturers are thus forced to sell yarn at break-even prices-or even at a loss.
Additionally, many spinning mills are currently unable to access Export Development Fund (EDF) facilities, putting their bank borrowings at significant risk due to potential repayment difficulties.
Given the critical linkage between the yarn and RMG sectors-the latter being the most vibrant source of foreign currency earnings for Bangladesh-positive policy interventions are urgently needed. Measures such as utility subsidies, reduced bank interest rates, and VAT waivers could provide the breathing space required for the sector to regain global competitiveness.
Kawsik Azad Pronoy
Banker and Business analyst
kawsik.azad@dutchbanglabank.com
