Bangladesh plans to shift from Indian to U.S. cotton

What Happened

• Bangladesh's interim government announced plans to shift its cotton sourcing from India to the United States as a condition for accessing zero-duty status on textile exports to the US under the newly signed US-Bangladesh trade agreement.
• Bangladesh's information adviser termed the trade deal a "game changer," while experts cautioned that a complete switch away from Indian cotton faces structural and logistical barriers.
• The deal requires Bangladeshi garment manufacturers to use US-produced cotton or man-made fibre to qualify for zero reciprocal tariffs; garments using cotton from third countries (including India) face the standard 19% rate.
• India exported 12-14 lakh bales of raw cotton and $1.47 billion worth of cotton yarn to Bangladesh in 2024-25, making Bangladesh India's single largest cotton and yarn export market.
• Shares of Indian textile and yarn companies fell within hours of the deal's announcement, reflecting market assessment of the competitive risk.

Static Topic Bridges

India's Cotton Sector: Structure and Vulnerability

India is the world's largest cotton producer, growing approximately 6 million tonnes annually, and the second-largest exporter after the US. Cotton cultivation in India spans approximately 12 million hectares, concentrated in Maharashtra (Vidarbha), Gujarat (Saurashtra), Andhra Pradesh, Telangana, and Rajasthan. It supports an estimated 60 million farmers and farm labourers.

Indian cotton's international competitiveness rests on price — Indian Shankar-6 cotton is typically 10-15% cheaper than US Pima or Upland cotton. However, Indian cotton faces recurring criticism over quality consistency, contamination (due to manual picking), and inconsistent staple length — factors that disadvantage it in high-value markets. These structural quality issues mean that US cotton, despite higher price, is preferred for premium garment manufacturing.

Bangladesh was India's largest cotton customer, absorbing the surplus that could not be sold domestically. A sharp reduction in Bangladesh's Indian cotton purchases would directly depress Indian farm-gate cotton prices, particularly in Maharashtra and Gujarat — regions already battered by crop cycles and farmer distress.

Global Cotton Trade and the US Cotton Advantage

The United States is the world's third-largest cotton producer and the largest exporter, shipping approximately 3.5 million tonnes annually — primarily Upland and Pima varieties grown in Texas, Mississippi, and California. US cotton benefits from heavy government support: the USDA's marketing loan programme, price loss coverage (PLC), and Agricultural Risk Coverage (ARC) effectively insulate US cotton farmers from price fluctuations and make US cotton competitively priced despite higher production costs.

The US trade deal's cotton-linkage mechanism is a classic "tied-trade" instrument: by making zero-duty access conditional on using American inputs, it creates a structural procurement guarantee for US cotton farmers embedded in a foreign trade agreement. Similar input-linkage mechanisms have been used in other US bilateral agreements.

India-Bangladesh Trade Interdependence and Recent Strains

India-Bangladesh bilateral trade reached approximately $13 billion in 2024 (India's exports to Bangladesh: ~$11 billion; India's imports from Bangladesh: ~$2 billion). The relationship is structurally asymmetric — Bangladesh is far more dependent on Indian raw material and intermediate goods than India is on Bangladeshi exports. However, this dependence is concentrated in specific sub-sectors: cotton, yarn, industrial chemicals, machinery, and petroleum.

Recent months have seen deliberate steps to reduce trade interdependence. In April 2025, India withdrew a transshipment facility that had allowed Bangladeshi exporters to route goods through Indian territory to third-country markets — a move that cost Bangladeshi exporters an estimated Tk 20 billion in additional logistics costs. Bangladesh subsequently restricted some Indian yarn and blended cloth imports by land routes. These tit-for-tat moves predate the cotton-diversion announcement but set the political context.

India's Textile Value Chain: Exposure and Resilience

India's textile sector is the second-largest employment generator after agriculture, employing approximately 45 million people directly and 60 million indirectly. The sector runs from raw cotton through spinning, weaving, knitting, dyeing, finishing, and apparel manufacturing — a vertically integrated value chain. India's vulnerability in this chain lies in exports of raw cotton and yarn (commodity-like products with thin margins) rather than finished garments (higher value, but India has a smaller global market share than Bangladesh).

If Bangladesh reduces Indian cotton and yarn imports, Indian spinning mills — particularly in Gujarat (Surat), Maharashtra (Nagpur, Akola), and Tamil Nadu (Coimbatore) — will face overcapacity and margin compression. The government's PLI (Production-Linked Incentive) scheme for textiles (announced 2021, ₹10,683 crore) targets man-made fibres and technical textiles — sectors less exposed to the Bangladesh demand shock.

Key Facts & Data

• Bangladesh imports 12-14 lakh bales of Indian cotton and $1.47 billion of Indian yarn annually
• Bangladesh's garment exports: ~$44 billion; 80% are cotton-based (~$35 billion)
• Bangladesh's domestic spinning capacity covers only $3-4 billion of $17-18 billion annual yarn demand
• India's cotton production: ~6 million tonnes/year; exports ~$4-5 billion annually
• US cotton export value: ~$7 billion annually (world's largest exporter by volume)
• Sea freight time, US to Bangladesh: 30-45 days; vs India to Bangladesh by land: 3-5 days
• India-Bangladesh bilateral trade: ~$13 billion (2024), heavily skewed toward Indian exports
• MSP for cotton (long staple, 2025-26): ₹7,121/quintal
• Indian textile PLI scheme: ₹10,683 crore targeting man-made fibre and technical textiles