Written by The Banking Post
The government has more than tripled the cash incentive for export-oriented ready-made garment (RMG) manufacturers to encourage greater use of locally produced yarn and fabrics, in a move aimed at reviving the country’s struggling spinning industry.
Under a Finance Division notification issued on July 9, the cash incentive has been increased to 5 per cent from 1.5 per cent, with effect from July 1, 2026.
The decision came hours after Finance Minister Amir Khosru Mahmud Chowdhury held a meeting with leaders of the Bangladesh Textile Mills Association (BTMA), led by its President Showkat Aziz Russell, at the National Board of Revenue (NBR) headquarters.
To qualify for the incentive, garment exporters must submit documentary evidence proving they purchased yarn, fabrics or other raw materials from local manufacturers before exporting their products.
The latest move marks a major policy shift. In 2024, the government reduced the cash incentive from 4 per cent to 1.5 per cent as part of preparations for Bangladesh’s graduation from least-developed country (LDC) status.
Industry leaders said the reduction hurt local spinning mills already struggling with high gas prices, energy shortages, expensive bank borrowing and weak global demand. Meanwhile, cheaper imported yarn—mainly from India—continued to gain market share.
According to the BTMA, Bangladesh imported yarn worth about Tk 260 billion in FY25 despite having sufficient domestic production capacity.
Welcoming the decision, BTMA President Showkat Aziz Russell said the higher incentive would help narrow the price gap between imported and locally produced yarn and encourage garment manufacturers to source more raw materials locally.
“This is a timely and positive decision. It will encourage garment exporters to source more yarn and fabrics locally, strengthening the country’s backward-linkage industry.”
He said the industry had been demanding the measure since the tenure of the interim government, adding that more than 200 textile mills might have remained operational over the past two years had the decision been taken earlier.
Russell also stressed the need for strict monitoring to ensure exporters actually purchase local raw materials instead of claiming the incentive while relying on imports.
Bangladesh Knitwear Manufacturers and Exporters Association (BKMEA) President Mohammad Hatem welcomed the increased support but said additional measures were needed to restore the sector’s competitiveness.
“The incentive will certainly help increase local sourcing, but the industry also needs uninterrupted gas and electricity supplies and lower financing costs.”
Industry leaders expect the revised incentive to increase domestic value addition, reduce dependence on imported textile inputs and strengthen Bangladesh’s apparel supply chain ahead of LDC graduation.
According to BTMA, Bangladesh has more than 1,800 textile mills, including 527 spinning mills, with total investments of around $23 billion. The industry can meet the country’s entire demand for cotton yarn and about 60 per cent of non-cotton yarn demand, although many mills have been operating well below capacity because of weak demand from local garment exporters.
