Cash incentives for Bangladesh's export-oriented ready-made garment (RMG) manufacturers have been redoubled to 5.0 per cent from 1.5 per cent for resuscitating struggling spinning industry through greater use of locally produced yarns and fabrics.
The Finance Division issued on July 9 a notification making the revised incentive package effective retrospectively from July 1, 2026.
The move came hours after Finance Minister Amir Khosru Mahmud Chowdhury met leaders of Bangladesh Textile Mills Association (BTMA), led by its president Showkat Aziz Russell, at the National Board of Revenue (NBR) headquarters.
Under the new policy, garment exporters will be eligible for the cash incentives only if they can submit documentary evidence that they procured yarn, fabrics or other raw materials from domestic producers before exporting their products.
The notification says, "The existing cash-incentive rate has been increased from 1.5 per cent to 5.0 per cent," subject to the use of locally sourced raw materials.
The decision marks a significant policy reversal after the government slashed the incentives from 4.0 per cent to 1.5 per cent in 2024 as part of preparation for Bangladesh's graduation from the least-developed country (LDC) status.
The cutbacks sharply reduced the competitiveness of local spinning mills, which were already grappling with high gas prices, energy shortages, expensive bank loans and weak global demand. At the same time, imports of cheaper yarn-mainly from India-continued to rise, squeezing domestic producers.
Textile mill owners say the higher cash incentives would make locally produced yarn more price-competitive against imported alternatives, particularly from India, which currently accounts for nearly 95 per cent of Bangladesh's yarn imports.
They expect the measure to help revive idle capacity, protect investments and preserve thousands of jobs in the country's textile value chain.
According to BTMA, Bangladesh imported yarn worth about Tk 260 billion in FY25 despite having sufficient local production capacity.
Welcoming the decision, BTMA President Showkat Aziz Russell has said the higher incentives would significantly narrow the price gap between imported and locally produced yarns and help restore demand for domestic mills.
"This is a timely and positive decision. It will encourage garment exporters to source more yarn and fabrics locally, strengthening the country's backward-linkage industry."
"We have demanded this since the tenure of the interim government. Had the decision been taken then, more than 200 textile mills might not have shut down over the past two years."
Russell also stresses that strict monitoring would be essential to ensure exporters actually purchase from local mills instead of claiming the incentives while relying on imported inputs.
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) President Mohammad Hatem also welcomes the measure but cautions that incentives alone would not restore competitiveness.
"The incentive will certainly help increase local sourcing, but the industry also needs uninterrupted gas and electricity supplies and lower financing costs."
Industry leaders say the enhanced support is expected to boost domestic value addition, reduce dependence on imported textile inputs and strengthen Bangladesh's apparel-supply chain ahead of LDC graduation.
BTMA data show Bangladesh has more than 1,800 textile mills, including 527 spinning mills, with total investments of around $23 billion.
The industry is capable of meeting the country's entire demand for cotton yarn and around 60 per cent of non-cotton yarn demand, but many mills have been operating far below capacity because of weak demand from local garment exporters.
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