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Sheikh Hasina won the recently held general elections in Bangladesh. The verdict was released on January 5, 2024. Officials had announced that the ruling party, the Awami League, won "more than 50% of the seats" at Jatiya Sangsad, Bangladesh's supreme house of representatives.
Illustration by The Geostrata
A lower turnout was observed, along with opposition parties (one of them being the BNP, the Bangladesh Nationalist Party) boycotting the recently held elections on grounds of rigging and unnecessary use of legal enforcement to suppress their political activities.
Adding to that, the international community has called upon the Hasina administration to uphold democratic values and human rights, which have shown a dent during her reign since 2009. But they have also acknowledged the impressive economic growth witnessed in the past decade. Notably, Bangladesh has made a transition from a least-developed country to a lower-middle-income country.
The US has declared the recently held elections to be 'unfair'. This might set the tone for the Western world to possibly sanction her economy or restrict her from trading with the West.
Bangladesh's thriving textile economy lies at a high risk in that case, for it is directly responsible for 40% of its earnings through the exports of various garments and related products.
If its textile industry were to be punctured, it is imperative to understand its implications in the region as well as in the global supply chain. How can India clinch an opportunity out of adversity? How can Bangladesh mitigate these economic risks? And, above all, will it be prudent to tame Bangladesh, albeit economically?
TEXTILE INDUSTRY: BANGLADESH'S ACHILLES HILL?
The textile industry has been an integral part of her economy. Historically, it used to be a hub for global muslin and silk trade channels, exporting garments of fine quality to various parts of the world, including Europe.
The colonial rule effectively deindustrialized the industry, and even after 1971, when nationalisation of privately owned textile mills was the norm, it would not be until the 1980s and 1990s that the administration realised the true potential of the industry and started offering duty-free offers and other support for foreign apparel entities to set up their plants.
Low production costs and an abundant labour force, especially that of the female workforce, are some of the factors contributing to the competitive advantage Bangladesh has in the industry vis-à-vis India.
As far as employment is concerned, it is cheaper because of weak enforcement of labour laws, as evident in reports that exhibit hazardous conditions in which workers work. Fire outbreaks at various textile mills across Bangladesh are not uncommon.
If foreign investments are driven away (that might not be fuelled by political necessities but also by ethical necessities), then it could lose Bangladesh's crucial foreign reserves, which it cannot afford, provided it has recently averted a potential forex reserve crisis.
Not only that, it could crack open some fundamental problems that the economy has, such as a limited, diversified economy, the inability of economic climate risk mitigation, and the potential lack of proper tapping of the maritime industry, which time would tell whether Bangladesh could handle or not.
WHOSE LOSS IS IT ANYWAY?
Just like Bangladesh's textile industry (which was a part of the larger industry of the subcontinent), India's textile industry has also been plagued by deindustrialization.
Even after independence, rigid state control under the mixed economy apparatus and trade unionism are some of the factors that have impacted its productivity.
Partition also had a role to play; the jute industry in India was almost crippled when a large portion of the jute mills of undivided Bengal went to then-East Pakistan (now Bangladesh). This rearrangement of endowment can also explain the shift in nexus.
So, can sanctions on Bangladesh help India and the world? Here are the four possible scenarios:
WIN-WIN
India's recent push into the textile industry in the form of the development of dedicated PM-MITRA parks laced with world-class infrastructure, among other schemes and announcements, could help reduce logistic costs. Not only that, India has a larger export base than Bangladesh (it is the world's fifth-largest apparel exporter), which India could always tap into. If there are no takers for Bangladesh's textile output after sanctions, India could fill that gap as well.
India can be leveraged by Bangladesh as a crucial re-exporting base, given that rail and water connectivity between the two countries is expanding.
For the world, it might mean a greater volume of merchandise trade in this sector, provided India’s gross output exceeds that of Bangladesh.
LOSE-WIN
Yet, higher production costs in the Indian textile industry and low employment of women in the workforce are some factors that could keep foreign players from shifting operations from Bangladesh to India.
This obstacle could only be resolved through the rapid and effective implementation of supply-chain-based policies and the redevelopment of obsolete mills dotted across the nation. The world market would still have an opportunity to explore other destinations, like Central America and southern Sub-Saharan countries like Lesotho.
WIN-LOSE
India's huge consumer base can saturate any amount of output the textile industry produces through consumption within domestic boundaries. A report has found that Bangladesh’s exports can increase by 300% if it obtains even 1% of India’s total imports, and India has been importing from Bangladesh at an increasing rate.
If this rise is contained and, maybe, the whole import dynamics change, India’s own industry could make up for that loss.
But certain factors distinguish Bangladesh, such as duty-free customs (as mentioned above) and low labour and overall production costs. The world needs to bear this loss if such a case arises.
LOSE-LOSE
Is India a match for the global apparel sector? Data from 2020 shows that China, which was the world’s largest textile exporter, contributed 35.6% of total global exports. The second runner-up, Vietnam, only had a meagre 5% share. Unless India makes a meteoric rise in textile exports, it can lead to less competitiveness on the global front.
SCOPE OF DIVERSIFICATION
Bangladesh’s geographical location is both a boon and a bane. Blessed with some of the most fertile lands, a favourable climate, and abundant water resources, the nation has yet to obtain its full potential.
High urban population density has rather encouraged skewed economic development, and annual floodings prove to be a risk to the physical capital involved. Lack of employment opportunities has also exacerbated an impending labour force crisis; the incumbent Prime Minister had mentioned that around 15 million Bangladeshis work abroad in more than 170 countries.
With a new sense of hope being kindled by the ruling deposition—the vision of the creation of a ‘Sonar Bangla’ (Golden Bengal) and making Bangladesh a high-income country by 2041—it is important to look for diversification, especially in the services sector. Should an embargo on merchandise trade take place, this will allow Bangladesh to mitigate the economic risks to some extent.
The gig economy in Bangladesh is a thriving industry. Along with Pakistan, it is home to the second-largest group of employees in this economy in the world. Informal jobs are a quintessential feature of South Asian economies.
For someone to engage in freelancing and short-term contractual work with minimal investment and high returns, the prospects in this economy are huge.
WILL BANGLADESH LET GO?
The diplomatic clout of Bangladesh is rising, for it is one of the crucial access points to the Indian subcontinent. Combined with Hasina’s deterrence to relinquish power, Bangladesh would look to create ‘trade synergies’ with her partners like India, which she has done during her reign and is expected to continue, despite increasing Chinese footsteps in the nation.
Geopolitical realities might make sanctions on Bangladesh seem far-fetched, for it must not want to lose its grip on the Indo-Pacific. The US recognises Bangladesh as a crucial partner in the region. With another five-year term in her hand, Hasina has to play a delicate balancing act where sovereignty, human rights, and economic prowess remain at stake.
BY DEVASYA MITRA
CENTRE OF INDUSTRY AND INNOVATION
TEAM GEOSTRATA
Since the medieval times, Bengal (now West Bengal and Bangladesh) have been dominting the textile trade.