“Threads Across Borders: India–Bangladesh Cotton Trade Dynamics amid Protectionism and Proximity (December 2025)” A Case-cum-Research Study on Supply Chains, Policy Choices, and Strategic Interdependence

 Title

“Threads Across Borders: India–Bangladesh Cotton Trade Dynamics amid Protectionism and Proximity (December 2025)”
A Case-cum-Research Study on Supply Chains, Policy Choices, and Strategic Interdependence

 

Abstract

The India–Bangladesh cotton and cotton yarn trade represents one of South Asia’s most critical cross-border value chains, underpinning Bangladesh’s export-oriented ready-made garment (RMG) industry and India’s textile manufacturing ecosystem. By December 2025, this interdependence faced renewed strain following Bangladesh’s April 2025 ban on Indian cotton yarn through land ports and India’s retaliatory restrictions on Bangladeshi RMG imports via land routes. Simultaneously, India extended duty-free raw cotton imports till December 31, 2025, while consciously avoiding a ban on raw cotton exports to Bangladesh.

This case-cum-research paper examines the evolving trade dynamics, economic rationale, and policy choices of both nations in the backdrop of supply chain pressures, global price volatility, geopolitical shifts, and WTO norms. It evaluates whether India should restrict raw cotton exports, how Bangladesh’s dependence is changing with diversification to Brazil and the US, and what cooperative strategies can preserve mutual competitiveness. The paper integrates trade data, policy developments, and strategic analysis to generate managerial and policy insights, supported by teaching notes and discussion questions.

 

Keywords

India–Bangladesh trade, cotton exports, cotton yarn, RMG industry, trade restrictions, supply chains, duty-free imports, WTO norms, South Asia textiles, December 2025.

 

1. Introduction

The textile and apparel value chain is one of the most globally fragmented industries, where raw material sourcing, spinning, weaving, and garmenting often occur across borders. In South Asia, India and Bangladesh together form a classic example of such interdependence: India as a major cotton producer and yarn exporter, and Bangladesh as the world’s second-largest garment exporter after China.

By December 2025, this relationship stood at a crossroads. While trade volumes remained large, mutual restrictions and shifting sourcing patterns raised questions about the sustainability of this partnership. Bangladesh’s decision in April 2025 to ban Indian cotton yarn imports via land ports, aimed at protecting domestic spinners, triggered Indian retaliation on Bangladeshi RMG imports. At the same time, India faced rising cotton imports, falling global prices, and pressure from domestic mills, yet refrained from imposing a raw cotton export ban.

This case explores how policy choices, supply chain economics, and strategic interests interact in shaping bilateral trade outcomes.

 

2. Background: The Cotton–Yarn–Garment Value Chain

2.1 India’s Position

India is one of the world’s largest producers and consumers of cotton, with a vast spinning and textile base.

By 2024–25:

• Domestic consumption: ~324 lakh bales
• Exports: ~65 lakh bales (estimated)
• Imports: Record 39 lakh bales, driven by demand for contaminant-free cotton and lower global prices.
• Key import sources: Australia (duty-free), Africa, others.
• Yarn conversion cost advantage: ~₹60/kg for 30s count, among the lowest globally.

India exported about:

• $1.6 billion of cotton yarn to Bangladesh in 2024.
• Bangladesh accounted for ~46% of India’s total yarn exports.

2.2 Bangladesh’s Dependence

Bangladesh’s RMG sector:

• Contributes ~80% of exports and is the backbone of its economy.
• Needs around $3 billion worth of cotton annually.
• Imports about 12.15 lakh tonnes of yarn (2024), 95% from India.

Key reasons for dependence:

• Proximity advantage: 2–3 days lead time from India vs ~45 days from US/Africa.
• Dollar shortages limit LCs for distant suppliers.
• Gas shortages and reduced incentives raised domestic spinning costs.
• Global buyers demanding shorter lead times.

By FY24:

• Bangladesh imported $2.36 billion worth of cotton from India, over half its needs.
• Total imports from India stood at ~$9 billion.

 

3. Emerging Tensions and Policy Shocks (2024–2025)

3.1 Bangladesh’s April 2025 Yarn Ban

In April 2025, Bangladesh:

• Banned Indian cotton yarn imports through major land ports such as Benapole and Bhomra.
• Objective: Protect local spinners from allegedly underpriced Indian yarn.

Impact:

• Yarn inflows disrupted; rerouted via sea ports.
• Volumes fell from ~100 million kg/month to ~90 million kg/month.
• Increased logistics costs and delays.

3.2 India’s Retaliation (May 2025)

India responded by:

• Banning Bangladeshi RMG imports via land ports; only Nhava Sheva and Kolkata seaports allowed.
• Restricting other items like fruits and cotton waste through northeastern ICPs.

Though not a full trade ban, the move raised costs for Bangladeshi exporters heavily reliant on land routes.

3.3 Duty-Free Cotton Imports (India)

India extended zero-duty on raw cotton imports (HS 5201) till December 31, 2025, aiming to:

• Support textile exporters amid global competition.
• Offset high domestic prices and US tariffs on Indian RMG.
• Allow imports up to ~4.2 million bales.

This lowered raw material costs by 5–7% for Indian mills but exerted downward pressure on domestic farmer prices.

 

4. December 2025 Situation: Stabilization with Shifts

By December 2025:

• No new bans announced by either side.
• Tensions stabilized but restrictions remained.
• India avoided any raw cotton export ban.
• Bangladesh diversified sourcing:
• Brazil became the top raw cotton supplier, overtaking India.
• India’s earlier share (~23%) declined.
• Yet, Bangladesh still sourced ~82% of cotton yarn from India due to proximity and cost advantage.

India maintained:

• Yarn exports rerouted via sea.
• Focus on value-added exports instead of raw cotton restrictions.
• Bilateral trade around $13 billion continued.

 

5. Analytical Framework

This case uses:

1. Value Chain Analysis – where value is created across cotton → yarn → garments.
2. Trade Policy Analysis – protection vs competitiveness.
3. Game Theory Perspective – retaliation vs cooperation.
4. Supply Chain Economics – lead time, cost, reliability.
5. Stakeholder Analysis – farmers, mills, exporters, governments.

 

6. Should India Ban Raw Cotton Exports? A Strategic Evaluation

6.1 Arguments For a Ban

1. Protect Domestic Mills
   Frees up ~65 lakh bales for local spinning amid rising imports.
2. Reduce Trade Deficit
   Bangladesh accounts for a large share of India’s cotton exports; restricting could narrow the $2.36B gap.
3. Value Addition at Home
   Encourages conversion into yarn/fabric before export.
4. Leverage in Negotiations
   Could pressure Bangladesh to lift yarn land-port bans.

6.2 Arguments Against a Ban

1. Disrupt Bangladesh’s RMG Industry
   Cost increases of 20–30%, threatening a sector employing millions.
2. WTO Norms & Reputation
   Echoes the controversial 2012 cotton ban, risking global criticism.
3. Retaliation Risk
   Could lead to tighter curbs on Indian yarn and textile exports.
4. Loss of Strategic Goodwill
   Pushes Bangladesh towards Brazil, US, Turkey, eroding India’s neighborhood influence.
5. India’s Own Imports Rising
   With record imports, a ban appears contradictory.

6.3 Outcome by December 2025

India chose not to ban raw cotton exports, prioritizing:

• $3.57 billion annual yarn revenue.
• Long-term presence in Bangladesh’s value chain.
• Stability over escalation.

 

7. Economic and Market Impacts

7.1 On India

• Duty-free imports reduced costs for exporters by 5–7%.
• Domestic cotton prices softened, affecting farmers during harvest.
• Mills shifted to higher-quality imports.
• Yarn exports to Bangladesh sustained via sea, though margins compressed.
• Helped cushion impact of 50% US RMG tariffs (Aug 2025).

7.2 On Bangladesh

• Local spinners gained temporary relief.
• Garment factories faced yarn shortages and higher costs.
• Gas shortages and reduced incentives (to 1.5%) persisted.
• Shifted raw cotton sourcing to Brazil and US.
• Continued reliance on Indian yarn due to lead-time pressure.

7.3 On Global Market

• Global cotton prices rose post-duty-free announcement.
• South Asia emerged as a key arena for cotton trade rebalancing.

 

8. Strategic Interdependence: Proximity vs Protection

The core tension lies between:

• Proximity Advantage: India’s 2–3 day delivery suits fast fashion cycles.
• Protectionist Pressures: Domestic industry lobbies in both countries.

For global brands demanding shrinking lead times, any disruption in this corridor threatens competitiveness vis-à-vis Vietnam, China, and Turkey.

 

9. Policy Recommendations

For India

1. Avoid Raw Cotton Export Ban
   Maintain credibility and market access.
2. Promote Value-Added Exports
   Focus on yarn, fabric, and technical textiles.
3. Encourage Joint Ventures in Bangladesh
   Indian spinning with Bangladeshi garmenting.
4. Farmer Safeguards
   MSP support or buffer stocks during duty-free phases.
5. Use Joint Trade Commission (JTC)
   Negotiate phased relaxation of land port curbs.

For Bangladesh

1. Balanced Protection
   Safeguard spinners without crippling garment exporters.
2. Energy Reforms
   Address gas shortages to revive domestic spinning.
3. Source Diversification
   Continue Brazil/US ties but retain India proximity.
4. Facilitate Sea Route Efficiency
   Reduce logistics bottlenecks.

Jointly

• Develop a South Asian Textile Corridor.
• Harmonize standards and border processes.
• Emphasize cooperation over retaliation.

 

10. Conclusion

By December 2025, India–Bangladesh cotton trade had entered a phase of pragmatic stabilization. While political tensions and protective impulses remained, both nations recognized the cost of escalation. India’s decision to avoid a raw cotton export ban, combined with duty-free imports, reflected a strategic shift towards value-added competitiveness rather than raw material control. Bangladesh, meanwhile, diversified sourcing but could not escape reliance on Indian yarn due to proximity and cost economics.

The case underscores a vital lesson for emerging economies: in tightly linked value chains, cooperation often yields greater long-term gains than protectionism. As global apparel markets face volatility, sustainability pressures, and geopolitical risks, the India–Bangladesh textile corridor will remain a litmus test of regional economic diplomacy.

 

Teaching Notes

1. Case Objectives

To help students:

• Understand trade-offs between protectionism and competitiveness.
• Analyze value chains across borders.
• Evaluate policy under uncertainty.
• Apply strategic thinking to bilateral trade disputes.

2. Target Courses

• International Business
• Strategic Management
• Trade Policy & WTO
• Agribusiness Management
• Supply Chain Strategy

3. Key Issues for Analysis

• Should raw material exports be restricted to protect domestic industry?
• How does proximity reshape global supply chains?
• What is the role of retaliation in trade diplomacy?
• How can countries move up the value chain?

4. Suggested Class Flow (90 minutes)

1. Introduction & Context – 15 min
2. Group Analysis – 30 min
3. Debate: Ban vs No Ban – 25 min
4. Instructor Synthesis – 20 min

5. Discussion Questions

1. Was India’s decision to avoid a raw cotton export ban strategically sound? Why?
2. How does lead time reshape comparative advantage in textiles?
3. Can Bangladesh realistically reduce dependence on Indian yarn?
4. What lessons does this case offer for South–South trade relations?
5. How should India balance farmer welfare with exporter competitiveness?
6. Would a joint venture strategy outperform trade restrictions in the long run?

6. Teaching Insights / Expected Answers

• No-ban policy preserves long-term influence and avoids WTO risks.
• Proximity is a strategic asset equal to cost.
• Complete decoupling is unlikely due to structural interdependence.
• Regional value chains are more resilient than fragmented sourcing.
• Compensatory farmer policies are needed alongside liberal imports.

References

·         Bangladesh Bank. (2025). Monthly economic trends: External sector statistics. Dhaka: Bangladesh Bank.

·         Directorate General of Commercial Intelligence and Statistics (DGCI&S). (2025). India’s foreign trade statistics 2024–25. Kolkata: Ministry of Commerce & Industry, Government of India.

·         Government of India, Ministry of Finance. (2025). Notification extending duty-free import of raw cotton (HS 5201) up to 31 December 2025. New Delhi: Department of Revenue.

·         Government of India, Ministry of Textiles. (2024). Annual report 2023–24. New Delhi: Author.

·         International Cotton Advisory Committee. (2024). World cotton statistics. Washington, DC: ICAC.

·         International Trade Centre. (2025). Trade map: Cotton and yarn trade between India and Bangladesh. Geneva: ITC.

·         Reuters. (2025, April 18). Bangladesh bans Indian cotton yarn imports via land ports to protect local mills. Reuters.

·         Reuters. (2025, May 20). India restricts Bangladeshi garment imports through land routes amid trade tensions. Reuters.

·         Textile Commissioner’s Office. (2025). Cotton balance sheet of India 2024–25. Mumbai: Government of India.

·         United States Department of Agriculture. (2025). Cotton: World markets and trade (May 2025). Washington, DC: USDA, Foreign Agricultural Service.

·         World Trade Organization. (2024). World trade statistical review 2024. Geneva: WTO.

·         Economic Times. (2025, December 5). India extends zero-duty cotton imports to support textile exporters. The Economic Times.

·         Business Standard. (2025, July 14). Bangladesh remains top buyer of Indian cotton yarn despite port curbs. Business Standard.