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GST gives Bangladesh cost advantage

With GST Bangladesh has started making inroads into India's readymade garment market.

This tax has given Bangladeshi garment manufacturers a ten to 15 per cent cost advantage over production in India. The over-arching tax was implemented in India from July 1. Imports of garments from Bangladesh jumped 56 per cent from then to November over the corresponding period last year. Of this, imports of knitted apparel surged 69 per cent. Knitwear from Bangladesh is popular in India because of low prices and good quality.

Bangladesh procures fabrics from China duty-free while Indian garment makers have to pay 20 per cent import duty for the same fabrics from China. Their power and personnel costs are also higher. Bangladesh’s two other basic advantages over Indian manufacturers are cheaper electricity and cheaper labor.

In the pre-GST regime, garment manufacturers in India were protected through the levy of a countervailing duty on imports, equivalent to the excise duty on domestically manufactured garments, in addition to education cess. This protection has gone away after GST implementation.

Garment exports from Bangladesh to India rose 30.86 per cent year-on-year in fiscal 2015-16. Foreign retailers buy a lot of garment items from Bangladesh for Indian customers, especially for the rising middle class.

 
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