Stitching a Comeback, How the India-EU FTA and Bangladesh’s LDC Graduation Could Reshape the Textile Trade
For decades, the story of textiles in South Asia has been a tale of two trajectories. While India’s textile sector has steadily lost ground in global export markets, Bangladesh has woven together a remarkable success story, becoming a powerhouse in readymade garments. The contrast is stark: Bangladesh’s share of the EU’s knitted garment imports rose from just 6% in 2000 to 26% by 2023, while India’s share declined from nearly 6.5% in 2009 to about 4.4% in 2023.
But the tectonic plates of global textile trade are shifting. Two major structural changes are on the horizon: the recently concluded India-EU Free Trade Agreement (FTA), and Bangladesh’s impending graduation from Least Developed Country (LDC) status in 2029, which will end its duty-free access to the EU under the Everything But Arms (EBA) scheme. Together, these changes create a rare window of opportunity for India to reclaim lost ground.
As analysts Anwesha Basu and Arnab Chakrabarti argue in their data-driven examination, the question is whether India is finally ready to tailor a strategy that fits—capturing market share with cost-competitive production, vertical integration, and a coherent industrial policy.
The Tale of Two Textile Trajectories
To understand the opportunity, one must first grasp the scale of the divergence. In the EU market, India’s exports remain concentrated in intermediate products—particularly yarns and fabrics—rather than in finished garments. Bangladesh, by contrast, has built its success on readymade garments: T-shirts, jerseys, pullovers, sweaters, cardigans, suits, jackets, trousers, dresses, and shirts.
The numbers tell the story. For knitted and crocheted garments, India’s share of EU imports peaked at around 6.5% in 2009 before sliding to 4.4% in 2023. Bangladesh’s share, meanwhile, climbed from 6% in 2000 to 13% in 2009 and an astonishing 26% by 2023. For woven garments, the pattern is similar, with India’s nominal export value to the EU falling from a peak of about $3.5 billion to $2.9 billion in recent years.
Why has India struggled to compete? A comparison of unit values offers clues. Across major product categories, India’s average prices are consistently higher than Bangladesh’s. For T-shirts, India’s unit price in 2024 was $2.9 compared to Bangladesh’s $2.4. For men’s suits, jackets, and trousers, India’s price was $12.5 against Bangladesh’s $9.2. For women’s suits, jackets, and dresses, India’s price was $9.6 versus Bangladesh’s $7.5.
This price differential could indicate two things. First, India may be exporting more value-added, better-quality garments, allowing it to charge premium prices. However, its low market share suggests that EU demand for such premium products is limited relative to mass-market apparel. Premium positioning alone cannot drive volume. Second, and more likely, higher prices may reflect structural disadvantages: higher production costs, less integrated supply chains, and logistical inefficiencies that make Indian goods uncompetitive in the price-sensitive mass market.
The Tariff Disadvantage: A Level Playing Field at Last?
The most significant factor behind Bangladesh’s success has been its preferential access to the EU market. As an LDC, Bangladesh has enjoyed duty-free, quota-free access under the Everything But Arms (EBA) scheme. Crucially, this zero-tariff access applies even when garments do not meet the EU’s standard “double transformation” requirement. This means Bangladesh can import fabric from anywhere in the world, stitch garments domestically, and export them to the EU at zero duty.
India, lacking such preferential treatment, has faced EU Most Favoured Nation (MFN) tariffs of around 12%. For a price-sensitive industry with thin margins, a 12% tariff disadvantage is crippling. It explains why Bangladeshi garments have been able to undercut Indian products in the EU market, even when production costs might be similar.
The India-EU FTA changes this calculus. The agreement grants India duty-free access to EU textile markets, subject to the double-stage processing requirement. This means that to qualify for zero tariffs, garments must be made from fabric produced in India or the EU. Fabric imported from a third country would not qualify.
Here, India has a structural advantage. Unlike Bangladesh, which relies heavily on imported fabrics (including from India), India’s textile industry is relatively vertically integrated. Most of the yarn and fabric used in apparel production is manufactured domestically. The double-stage requirement is not likely to be an impediment for Indian exporters, who can meet stricter rules of origin without major restructuring.
Bangladesh’s LDC Graduation: The End of an Era
Simultaneously, Bangladesh faces its own challenge. In 2029, it is set to lose its LDC status and with it, automatic duty-free access to the EU under EBA. Apparel exports will then potentially face MFN tariffs of around 12%—the same disadvantage India has laboured under for years.
Bangladesh is expected to seek entry into the EU’s Generalised Scheme of Preferences Plus (GSP+), which offers zero tariffs on roughly two-thirds of tariff lines, including textiles. However, GSP+ comes with stricter rules of origin and safeguard provisions. To qualify for duty-free access, garments would need to meet the double transformation requirement—meaning fabric would need to be sourced from Bangladesh or the EU.
This is a problem for Bangladesh, which is heavily reliant on other countries, including India, for fabrics. Its garment industry has been built on a model of importing fabric, stitching garments, and exporting. If it cannot meet the double transformation requirement, its products may not qualify for GSP+ benefits. It will, of course, try to negotiate its way out of this clause. But historically, the EU has maintained its stance on the double transformation criteria. If it continues to do so, Bangladesh will face a serious disadvantage.
The Competitive Dynamics: Price vs. Integration
What happens next depends on the underlying sources of Bangladesh’s competitiveness. If its advantage is primarily price-driven—the result of low wages and tariff preferences—then the combination of losing duty-free access and facing MFN tariffs could significantly erode its market share. Indian goods, now also duty-free, could compete on a more level playing field.
If, on the other hand, Bangladesh’s advantage comes from deep supply-chain integration, logistical efficiency, and a supportive policy environment, it could retain dominance even in the face of higher tariffs. A well-oiled machine can absorb some cost increases and still remain competitive.
The evidence suggests both factors are at play. Bangladesh’s lower unit prices reflect both cost advantages and the tariff preference. But its remarkable growth—from 6% to 26% market share in two decades—also reflects consistent, unilateral policy focus on the garment sector. India’s approach, by contrast, has been fragmented.
The Vietnam Precedent
There is reason for optimism. The experience of Vietnam following its FTA with the EU in 2020 is instructive. Vietnamese apparel exports surged after the agreement came into force, as tariff barriers fell and European buyers gained confidence in the supply chain. Vietnam’s success demonstrates that an FTA, combined with a competitive industry, can produce rapid gains.
India’s opportunity is similar. The EU is a high-income market with sophisticated consumers and strict standards. Gaining market share there is not just about volume; it is about moving up the value chain, demonstrating quality and reliability, and building long-term relationships with European buyers.
The Employment Imperative
Textiles remain one of the largest employers in Indian manufacturing, spanning both formal and informal enterprises. Yet the sector has failed to create significant employment opportunities in recent years. This is not just an economic problem; it is a social and political one. India needs jobs for its young, growing population. Labour-intensive manufacturing, particularly in textiles and garments, is one of the few sectors capable of absorbing large numbers of relatively low-skilled workers.
Reviving textile exports, particularly to high-income markets like the EU, could act as a much-needed tonic for India’s employment crisis. Every percentage point of market share gained translates into thousands of jobs—in spinning, weaving, dyeing, cutting, stitching, finishing, and logistics. The multiplier effects ripple through the economy.
The Way Forward: A Coherent Industrial Policy
The opportunity is real, but it will not be seized automatically. India must put in place a coherent industrial policy for textiles. This means addressing the structural disadvantages that have kept unit prices high: power costs, logistics inefficiencies, regulatory burdens, and credit constraints. It means investing in skills and technology to improve productivity and quality. It means working with industry to identify and exploit niche opportunities within the broader mass market.
It also means ensuring that the benefits of the FTA reach the entire value chain, including the small and medium enterprises that form the backbone of the sector. Trade agreements can sometimes concentrate gains among large players; deliberate policy is needed to ensure broad-based growth.
Conclusion: A Rare Window
The convergence of two structural shifts—India’s FTA with the EU and Bangladesh’s LDC graduation—creates a rare window of opportunity. The tariff disadvantage that has long hampered Indian exports is narrowing. The rules of origin play to India’s strength in vertically integrated production. The EU market remains the world’s largest for high-quality apparel.
Whether India seizes this moment depends on the choices made now. The data is clear. The opportunity is real. The question is whether Indian policymakers and industry can stitch together a strategy that finally allows the country to compete with its neighbour on a level playing field.
Q&A: Unpacking the Textile Opportunity
Q1: Why has Bangladesh outperformed India in EU garment exports despite starting from a similar base?
A: Bangladesh’s success can be attributed to three main factors. First, tariff preference: as an LDC, it enjoyed duty-free access to the EU under the Everything But Arms scheme, while India faced 12% MFN tariffs. Second, policy focus: Bangladesh consistently and unilaterally promoted its garment sector for three decades, building integrated supply chains and logistical efficiency. Third, cost competitiveness: its unit prices are consistently lower than India’s across major product categories, reflecting both structural advantages and the tariff benefit. India’s approach, by contrast, has been fragmented, and its higher unit prices may reflect higher production costs and inefficiencies.
Q2: What is the “double transformation” requirement, and why does it matter?
A: The double transformation requirement is a rule of origin that requires garments to be made from fabric produced either in the exporting country or in the EU to qualify for duty-free access. This matters because Bangladesh’s garment industry is heavily reliant on imported fabrics (including from India). If, after LDC graduation, Bangladesh cannot meet this requirement under GSP+, its exports may face MFN tariffs. India, with its relatively vertically integrated industry that produces most of its own fabric, is well-positioned to meet the requirement without major restructuring.
Q3: How will Bangladesh’s LDC graduation in 2029 affect its garment exports?
A: Bangladesh will lose automatic duty-free access under EBA and will likely seek GSP+ status. GSP+ offers zero tariffs on many products but comes with stricter rules of origin, including the double transformation requirement. If Bangladesh cannot meet this requirement, its exports could face MFN tariffs of around 12%. This would erode its price advantage. However, if Bangladesh’s competitiveness is rooted in supply-chain integration and efficiency rather than just tariff preference, it may still retain market share. The outcome depends on both negotiation with the EU and domestic adaptation.
Q4: What does the India-EU FTA offer Indian textile exporters?
A: The FTA grants Indian textile exporters duty-free access to the EU market, subject to meeting the double transformation requirement. Since India’s industry is relatively vertically integrated—most yarn and fabric used in apparel is domestically produced—this requirement is not a significant barrier. The FTA effectively removes the 12% tariff disadvantage that has long hampered Indian exports, levelling the playing field with Bangladesh (at least until Bangladesh’s LDC graduation). This creates a significant opportunity for Indian exporters to gain market share.
Q5: What needs to happen for India to capitalise on this opportunity?
A: Capitalising on the opportunity requires a coherent industrial policy. India must address the structural disadvantages that keep unit prices high: power costs, logistics inefficiencies, regulatory burdens, and credit constraints. It needs to invest in skills and technology to improve productivity and quality. It must work with industry to identify niche opportunities and ensure that gains from the FTA reach small and medium enterprises, not just large players. The Vietnam example shows that an FTA combined with a competitive industry can produce rapid gains. The question is whether India can match that performance.
