Bangladesh’s export-oriented ready-made garment (RMG) sector is poised to receive a significant policy boost as the government actively considers raising cash incentives for apparel manufactured using domestically produced yarn. The proposal under review suggests increasing the current 1.5 per cent cash incentive to a maximum of 5 per cent. This additional 3.5 percentage points would represent one of the largest short-term support measures for the sector in recent years.
The proposal emerged during a high-level meeting at the Ministry of Finance last Tuesday, attended by Finance Secretary Khairuzzaman Mozumdar, Commerce Secretary Mahbubur Rahman, and representatives from the Bangladesh Textile Mills Association (BTMA), Bangladesh Garment Manufacturers and Exporters Association (BGMEA), and Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA). The discussions focused on both domestic and global market conditions, recent export trends, rising production costs, and potential limitations in providing direct export subsidies following Bangladesh’s graduation from the least developed country (LDC) list.
Industry stakeholders have welcomed the move, highlighting its dual benefits. For exporters, the increased incentive could help mitigate profit pressures in highly competitive international markets, including Europe. Simultaneously, domestic spinning mills, which are currently struggling with unsold yarn and weak demand, would likely see a surge in orders. Strengthening the backward linkages within the textile value chain could, in turn, fortify the overall garment industry.
Before final approval, the government has constituted a ten-member committee comprising senior officials from the Finance and Commerce ministries and leaders of key textile and garment organisations. The committee is tasked with submitting recommendations within ten working days, after which the Ministry of Finance will decide on implementing the incentive increase.
In a related development on the same day, the Finance Secretary assured industry leaders that at least BDT 25,000 crore of pending cash incentives would be released within a week. Currently, the total outstanding claims amount to approximately BDT 60,000 crore. The partial disbursement is expected to ease liquidity pressures on exporters, particularly in the context of high interest rates, electoral uncertainty, and production disruptions during the Eid holiday.
Meanwhile, leaders of the knitwear sector have cautioned that, following LDC graduation, direct cash incentives are subject to stricter international trade rules, making timely implementation crucial. There is also ongoing debate within the industry regarding proposals to withdraw duty-free benefits for imported yarn. Some textile mill owners have called for stricter monitoring of illegal yarn imports, citing instances where falsified documentation and misdeclarations disadvantage local producers.
Policymakers and industry experts agree that the proposed cash incentive increase could provide a vital short-term boost to both garment manufacturing and spinning sectors, helping them navigate declining export orders, intensifying global competition, and rising operational costs.
Proposed Cash Incentive Overview
| Aspect | Current Status | Proposed Change |
|---|---|---|
| Cash incentive rate | 1.5% | 5% |
| Additional incentive | N/A | 3.5% |
| Total pending cash support | BDT 60,000 crore | Partial release of BDT 25,000 crore underway |
| Committee recommendation deadline | N/A | 10 working days |
If implemented, the incentive increase could offer much-needed relief to Bangladesh’s garment export system, helping it navigate near-term challenges while strengthening domestic production linkages.