Last week saw the Indian rupee fall against the US dollar by 4% in a day to end up trading at its lowest point in history.
Analysts have opined that the rupee is not likely to bounce back significantly due to the possible with-drawal of the US government stimulus and many investors and foreign institutions continuously withdrawing from Indian assets. Added to these factors are rising Indian budget deficits, and current ac-count deficits combined with rising inflation and uncertainty about the upcoming Indian election early 2014.
If the rupee stays under pressure, this may add to recent trends that have seen the Bangladesh taka continuously strengthening against the US currency. It is now trading at approximately Tk77 against a unit of Greenback.
Analysts are of the opinion that if the US dollar is not continuously supported by the central bank, then a stable or falling balance of import-export payments and growing inward remittances may see the Bangladeshi taka rise to a new level of 70 against a unit of US currency. Bangladesh Bank bought more than $4.5bn from the market during the 2012-13 fiscal in support of the US dollar and it is reported to be continuing its purchase from the interbank market.
India, in view of the growing disturbances in our apparel plants, is trying it’s best to use the relative increase in the taka to increase its own clothing exports with an eye to reducing the huge difference between its RMG exports and those from Bangladesh. The Indian government is considering further incentives for their relevant exporters who are likely to be boosted by a falling rupee.
The Reserve Bank of India has a track record in coming up with various incentive packages to “pull up” various industry segments or to keep them afloat amidst various global market threats.
Though there has been a long-standing debate about the relative ingenuity of Bangladeshi entrepre-neurs versus policy support of the government – as the reason for the success of Bangladesh’s RMG exports – the government, in recent days, has not been able to come up with any integrated ap-proach for it’s support for the apparel industry.
While “bonded warehouse facility” remains a big time policy support till today, we have seen continuous reduction in cash incentives and increases in tax at source, partly because apparel industries were historically paying low taxes. Thus while Pakistan has come up with special packages for it’s exporters like “exchange rate gap support,” Bangladesh has largely left the industry to market forces. Cash incentives have also declined other than for some “new product, new market” and textile products.
Even through the government could not meet its 2013 target for exports, it is eyeing more than 12% growth in Bangladesh’s exports in 2014, from $28bn to more than $30bn.
Though our exports increased by more than 11% during the last financial year despite no dramatic up-side in the US economy and a cloudy European picture, increasing exports by more than 12% next year without any specific stimulus may be a daunting task. Especially because India remains very supportive to its ready-made garments industry to do their best to improve against the Bangladesh apparel industry.
Jute and jute goods are likely to do well, along with supposed increases in pharmaceuticals and soft-ware exports, but since the Rana plaza disaster signs are ominous for the apparel export sector.
While the country received more than $19bn in apparel exports during 2012, it missed its target of $23bn in 2013 ending short at $21,4bn. It will possibly miss it’s target for 2014, unless all the stakehold-ers, especially the government do their best.
We have not seen anything significant coming from the finance ministry or the government with re-gard to helping out the garment sector to withstand the immediate challenges in the aftermath of the Rana Plaza collapse. We have not seen any extra allocation to pay for the increasing factory inspections, and there is no concrete funding allocated for factory relocations or worker support.
Recent newspaper reports have noted a few development partners coming forward to address im-provement needs in the apparel sector while a new wage-board or BGMEA recommended continuous review of the workers wages in view of market price rise or fall, are good ideas, garment owners de-served some policy support from the government too.
A falling rupee and rising taka is going to make their life even tougher. The US dollar is also appreciat-ing against the currencies of many other competing countries like Turkey, Indonesia, Brazil, Thailand and South Africa.
Recently, India’s duty free support to Bangladesh exports has resulted in a 13% year on year rise in Bangladeshi exports to India with Bangladesh exporting goods worth $564m there last year. This included ready-made garment exports to India rising from $55m to $75m.
However with a falling Indian rupee, this growth may go down for our apparel, jute and jute goods, leather and frozen food items which are the dominant players in our export basket to India.
In the same way, Bangladesh is anticipated to face tough competition from India in its exports to the European Union, North America and other RMG importing countries. On the other hand we may see a huge rise in our imports from India, due to consumers taking advantage of a cheap rupee.
Bangladesh Bank is seen continuously buying US dollars from the banks to support our exports and inward remittances which has resulted in a rise in its foreign exchange reserve to $16bn. However, this may not be enough in view of fast falling imports and increasing inward remittances.
We need a few more steps and packages like those tried in competing countries or tax breaks and the seeking of tariff reductions for the major export related imports used by the RMG industry.
Along with these we must develop a dynamic process to immediately react to any policy changes in our competing countries, especially India, with regard to their ready-made garment exports, and in time for other exports as well.
