The Fabric of Friction: How Textile Barriers are Stalling India-Bangladesh Trade

The multi-billion dollar trade bridge between India and India’s largest South Asian partner is fraying. While much has been said about Bangladesh’s exports, Indian exports to Bangladesh have dropped by over 6% in early 2026,and the textile sector is the main culprit.

The Textile Interdependence

India and Bangladesh share a "backward linkage" relationship. India exports cotton yarn and fabrics, which Bangladeshi factories convert into finished garments for the world.

The Volume: Bangladesh is India’s largest market for cotton yarn, accounting for roughly 25% of India’s total yarn exports.

The Problem: Monthly yarn shipments have fallen from 100 million kg to 90 million kg since late 2025.

Why Textile Exports are Struggling

Port Restrictions: In a reciprocal move, Bangladesh has restricted Indian yarn imports via five major land ports. Rerouting through distant seaports has made Indian raw materials more expensive and slower to arrive.

Forex & LCs: Bangladesh’s severe dollar shortage has made it difficult for Dhaka’s mill owners to open Letters of Credit (LCs) to pay Indian suppliers.

Proposed Tariffs: As of January 2026, Bangladesh is considering a 10–20% tariff on Indian yarn to protect its domestic spinning mills, further threatening Indian trade volume.

The "China Factor": Faced with Indian supply hurdles, Bangladeshi garment makers are increasingly looking toward China and Vietnam for finished fabrics.

The Bottom Line

The textile sector isn't just a part of the trade; it is the trade. If Indian yarn cannot reach Bangladeshi factories efficiently, India loses its export revenue, and Bangladesh loses its manufacturing competitiveness. A "textile truce" is urgently needed to keep the wheels of this corridor turning.