It is being estimated that India may suffer loss due to the zero tariff deal between America and Bangladesh.Image Credit source: ChatGPT
After the announcement of mutual trade agreement by America and Bangladesh, there was heavy pressure on the shares of many Indian textile companies during trading on February 10. After an initial surge on expectations about the India-US trade deal framework, stocks fell and stocks like Gokaldas Exports, KPR Mills, Arvind and Pearl Global Industries fell by more than 5 per cent.
Now the biggest question is why the shares of Indian textile companies are falling due to the Bangladesh and American trade deal. In fact, the zero tariff deal that has been signed between America and Bangladesh. Because of that, there is fear among Indian companies that how will India’s apparel sector survive in America in the face of zero tariff deal.
This means that this sector of India will not be able to compete with Bangladeshi clothes in America. Let us also tell you what is this zero tariff deal between America and Bangladesh and what kind of loss it can cause to India? On the other hand, how much can India benefit from this deal with Europe in the textile and apparel sector?
What is the US-Bangladesh zero tariff deal?
After nine months of talks, Bangladesh and America have signed a bilateral trade deal to strengthen economic ties. Under this deal, the US has reduced tariffs on Bangladeshi goods to 19 percent, which is lower than the initial level set in Executive Order 14,257 issued on April 2, 2025. This rate is marginally higher than the 18 percent reciprocal tariff agreed for Indian textile products under the India-US trade framework.
However, the most sensitive aspect of the US-Bangladesh agreement for Indian exporters is a specific commitment related to textiles and apparel. According to a joint US-Bangladesh statement, Washington has agreed to set up a system that will allow a certain amount of Bangladeshi textile and apparel exports to enter the US at zero tariffs.
The size of this quota will be determined on the basis of textile inputs imported by Bangladesh from the US, such as American cotton and man made fibres. Due to this provision, it is feared that despite high tariffs, Bangladesh can gain an edge in the American apparel market on the basis of price.
Why was there enthusiasm in the Indian textile industry?
Before the US-Bangladesh trade deal, it was widely believed that Indian textile exports were going to benefit from the US market. The India-US trade deal was being seen as a historic development, which would open up access to America’s $118 billion global import market for textiles and apparel.
The Indian government said that America is already India’s largest textile export destination, with exports worth about $10.5 billion, so this agreement will prove to be transformative. About 70 percent of these exports are apparel, while ready-made garments contribute about 15 percent.
According to the textile ministry, the 18 per cent tariff on Indian products will remove long-standing losses suffered by domestic exporters and put India in a stronger position than major competitors like Bangladesh (20 per cent), China (30 per cent), Pakistan (19 per cent) and Vietnam (20 per cent). The ministry said that this change in relative tariff will motivate big global buyers to change their strategy in favor of India.
Export worth Rs 30 thousand crore in three years
The government further said that this agreement can play an important role in India achieving the ambitious target of textile exports of $100 billion by 2030, in which the US contribution is expected to be more than one-fifth of the target. At the ground level, exporters from Tiruppur, India’s largest knitwear hub, initially showed great enthusiasm after the India-US announcement. According to PTI, Tiruppur Exporters Association President KM Subramanian said that garment exports to the US could double to Rs 30,000 crore in the next three years. He also estimated the creation of about five lakh additional jobs during this period.
Subramanian, Founder-Chairman of KM Knitwear Pvt Ltd, said in the ET report that currently around 10 lakh people are employed in this industry and this number may increase to 15 lakh in the next three to five years. Another Tiruppur-based exporter, M Rathinasamy, founder of Starlight Exporters, told PTI that orders from Bangladesh and other countries are expected to come back to Tamil Nadu after the India-US agreement. Rathinasamy, executive committee member of Tiruppur Exporters Association, said that this agreement is likely to lead to a huge increase in US orders for Indian manufacturers.
Will zero tariff policy bring change?
The proposed zero tariff exemption for some Bangladeshi textile and apparel products has dampened this enthusiasm to some extent. Market experts fear that even partial exemption may reduce the tariff advantage India enjoys in the US market. However, important details of the exemption given to Bangladesh are still not clear.
The agreement does not specify which textile or apparel categories will get zero tariff, the exact quantity of imports, or what will be the deadline for its implementation. This arrangement is also linked to Bangladesh’s use of US-origin textiles, which may significantly limit its use or increase costs for Bangladeshi exporters.
Given these uncertainties, it is entirely possible that the zero tariff policy may not have any significant impact on India’s competitive position. Additionally, as India and the US are negotiating the final form of the agreement announced last week, India has room to maintain its clear lead over Bangladesh in the US textile market or at least remain equally competitive.
India’s lead in Europe
Questions still remain regarding the American market, but India has achieved a major success in Europe. Under the EU-India trade agreement announced on January 27, India has got immediate zero-tariff entry into the EU’s US $263 billion textile market. The government has said that under the agreement, duties on textile imports will be completely abolished.
CareAge Ratings has described the agreement with the European Union as very important for improving India’s global competitiveness. The rating agency estimates that India can increase its share in the European Union’s apparel market from the current 5 percent to 9 percent, which will increase India’s annual exports by an additional US $ 4.5 billion.
The EU-India agreement has brought important changes for Bangladesh. Over the years, Dhaka, being a less developed country, has been enjoying preferences in the European market. Now, with India also getting the facility of zero tariff, this tariff related benefit has effectively ended. The European Union is Bangladesh’s largest trading partner, with textiles and apparel accounting for almost the entire trade.
This does not mean that Bangladesh will automatically lose market share, but it can no longer rely on old methods to maintain its position. Now Bangladesh will have to compete directly on a level playing field with India, where India’s textile industry is more integrated and diversified and is receiving stronger policy support, including several incentives announced in the Union Budget on February 1.