The Government of the People's Republic of Bangladesh has announced significant revisions to its cash incentive rates for various export items in January 2024. A circular issued by the Bangladesh Bank (BB) on 30 January 2024 indicated that in order to support the country's exports, the government is providing subsidies/cash incentives to the 43 sectors during the fiscal year 2023-24. As per the circular, Bangladesh will no longer be on the list of Least Developed Countries (LDCs) in 2026, the country will lose the ability to provide subsidies/cash incentives. After the graduation, the continuation of cash incentives or subsidies needs to be carefully managed to ensure that sectors remain competitive in the global market. The government, recognizing the need for compliance with World Trade Organization (WTO) rules and regulation, plans to gradually phase out various cash incentives. [1]
However, the government has allocated fiscal incentives of BDT 78.3 billion in FY24 to boost the country's export sector. [2] Historically, cash support ranging from 1 percent to 20 percent has been provided to the export sector to enhance its competitiveness on the international market. A recent circular from BB on January 30, 2024 adjusted these rates, setting the maximum at 15% and the minimum at 0.5% for the period from January 1 to June 30 this year. [3] These new rates will remain in effect from July 1, 2024, to June 30, 2025. [4]
According to export policy 2024-2027 of Bangladesh, besides these cash incentives, the policy offers two types of facilities to be provided to the exporters such as the general export facilities and another one is for product-specific export facilities. The policy for general export facilities includes several non-financial incentives, such as preferential exchange rates for exporters, enhanced skill development and technological assistance, tax holidays, income tax relief, VAT exemptions, and recognition through the Commercially Important Persons (CIP) status and the National Export Trophy.
The policy also includes support through foreign currency retention for exporters, rational utility billing at the industrial level, 5–10% rebates on electricity bills for main exporters, exemption from all licensing fees, duty rebates over 1% for capital machinery imports, support through the export promotion fund and issuing venture capital at lower rates with easy terms for export-oriented Small and Medium Enterprises (SMEs).
Other support measures include duty and tax-free imports of materials and equipment for R&D in export-oriented industries, rationalized air charges, foreign technical assistance in product diversification, support for establishing green energy units, loans for Effluent Treatment Plant (ETP) and green factory setups, introducing online banking, and financial assistance for university and academic research in export-oriented industries. As part of a financial package, the government has proposed forming an Export Development Fund (EDF) and Technology Upgradation Fund/ Technology Development Fund (TDF/TUF), which may provide exporters with loans in the form of venture capital at a lower interest rate and on easy terms.
The policy also gives priority to some specific product sectors to facilitate the growth of those sectors. Among them, the mentionable sectors are Information Technology Industry, Readymade Garments Industry, Leather Industry, Jute Industry, Agriculture, Frozen Food and Fish product, Plastic, Herbal etc. Within the export framework, it also includes special initiatives to support the handicraft, pharmaceutical, and medical equipment industries. For instance, as one of the significant and labor-intensive industries, the leather sector will undergo development through the formulation of a strategic roadmap alongside the establishment of a Technology Centre (TC) to guide the execution of the comprehensive development program. To boost production, the Export Readiness Fund (ERF) will provide necessary support, targeting reforms in small and medium-sized enterprises within the leather sector. [5]
In an effort to align with WTO regulations, several countries have initiated policy support mechanism for the exporters.[6] Notably, countries like India and China continue to support their export sectors under different schemes. For instance, Ministry of Commerce and Industry, India introduced the Production Linked Incentives (PLI) scheme on February 1, 2021 which specifically targets 14 strategic sectors for providing incentives to stimulate manufacturing and export growth. With a budget of ₹1.97 lakh crore (over $26 billion), the scheme encourages companies to invest in advanced technologies, R&D, and manufacturing capabilities. It offers incentives for up to 5 years which is tailored to meet the needs of various industries, thereby promoting India's self-reliance and positioning it as a leader in the global manufacturing sector. [7] The scheme also provides financial incentives to eligible companies in particular sectors, including automobiles, textiles, pharmaceuticals, and electronic components. Companies are rewarded under the PLI scheme according to their increased sales of manufactured products compared to a designated base year. [8]
Among 14 sectors, for instance, under the PLI scheme for large-scale electronics manufacturing, companies will receive incentives of 3% to 5% based on the incremental sales (over the base year) of goods manufactured within India. Eligibility criteria include meeting defined thresholds for both incremental investment and sales of manufactured goods. The scheme will operate for a four-year period, commencing on April 1, 2021.
Eligible companies are required to submit proposals that are assessed against a range of criteria, including production capacity, technological capabilities, and financial viability. This systematic evaluation process guarantees that manufacturing incentives are awarded to companies that demonstrate both merit and capability.[9] As of July 30, 2024, a total of 755 applications have been approved across various sectors under the PLI Scheme. This approval process has culminated in an investment realization amounting to ₹1.23 lakh crore by March 2024. The resultant capital inflow has played a pivotal role in generating employment opportunities for approximately 800,000 individuals. These developments underscore a substantial advancement towards the overarching objectives of the PLI Scheme, which include fostering domestic manufacturing, enhancing global competitiveness, and boosting employment generation across multiple sectors. [10]
Similarly, Chinese government launched ‘Made in China 2025(MIC25)’ initiative in 2015. The primary source of incentives for the MIC25 scheme is the Chinese government, with support from various state agencies, including the Ministry of Industry and Information Technology (MIIT). The initiative aimed at transforming China into a global leader in high-tech manufacturing across 10 key sectors, such as information technology, robotics, aerospace, and advanced rail equipment. [11] To support this initiative, the Chinese government provides incentives through several mechanisms: financial subsidies, tax incentives, low-interest loans, investment funds etc. Incentives under the MIC25 initiative are primarily targeted at domestic enterprises, foreign companies, and high-tech enterprises. These incentives are designed to foster technological innovation and industrial upgrading. [12]
In light of this, both India and China have implemented robust policy support mechanisms to enhance their export sectors. India’s PLI scheme exemplifies a comprehensive approach to stimulate manufacturing and export growth by providing significant financial incentives across various strategic sectors. Meanwhile, China's initiatives under MIC25 focus on fostering technological innovation, and supporting regional technology providers through targeted subsidies. By prioritizing investments in advanced technologies and creating favorable conditions for businesses, both countries are not only strengthening their export capabilities but also positioning themselves as competitive leaders in the global market. However, many developed nations, such as the U.S., Germany, and France, etc. have pushed back against China's trade and investment practices. Critics contend that China is distorting international markets by placing political objectives ahead of economic benefits. [13]
In conclusion, the Bangladeshi government may also establish alternative facilities for exporters to replace the existing cash incentives once the country graduates to developing status, thereby preserving its competitiveness in the global market. Similar to the strategies employed by India and China, Bangladesh may consider to effectively manage the transition following its graduation from LDC status. Acknowledging the potential challenges, this gradual approach aims to provide the export sector with adequate time to adapt and implement proactive measures to sustain competitiveness. Ultimately, by learning from the experiences of other developed countries, Bangladesh may develop targeted policies that support its exporters and enhance its position in the global marketplace.
[1]
Bangladesh Bank. (2024, January 30). FEPD Circular: Cash incentive for the
fiscal year 2023-24. Bangladesh Bank. https://www.bb.org.bd/mediaroom/circulars/fepd/jan302024fepd02.pdf
[2] Finance Division, Ministry of Finance. (2024). Medium Term Macroeconomic Policy Statement (MTMPS). Ministry of Finance, Government of Bangladesh. https://mof.portal.gov.bd/sites/default/files/files/mof.portal.gov.bd/page/d7b58d61_ebaf_4e65_a923_b631e61bae6e/MTMPS_English%20Approved.pdf
[3]
Centre for Policy Dialogue. (2024). Time for exporters to shed the cocoon of
cash incentives. Centre for Policy Dialogue. https://cpd.org.bd/time-for-exporters-to-shed-the-cocoon-of-cash-incentives/
[4]
Bangladesh Bank. (2024, June 30). FEPD
Circular: Cash incentives for export sectors. Bangladesh Bank. https://www.bb.org.bd/mediaroom/circulars/fepd/jun302024fepd12.pdf
[5] Ministry of Commerce. (2024, February 25). Updated export policy for 2024-2027. Ministry of Commerce, Government of Bangladesh. https://mincom.portal.gov.bd/sites/default/files/files/mincom.portal.gov.bd/notices/21cd26b4_3157_44c9_affb_34d8c876bca4/Updated%2025.02.24Exp%20Policy%2024-27.pdf
[6]
American Chamber of Commerce in
Bangladesh. (2024, March). AmCham Journal: March 2024 (p. 66). https://www.amchambd.org/wp-content/uploads/2024/04/AmCham-Journal-March-Issue-2024.pdf
[7]
Press Information Bureau. (2024,
September). 10 Years of Make in India Transforming India into a Global
Manufacturing Powerhouse.Government of India. https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/sep/doc2024925401801.pdf
f
[8] Wandhe, P. (2024). An overview on Production Linked Incentive (PLI) scheme by the Government of India. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4693578
[9]
Invest India. (2023). Schemes for electronics manufacturing. Invest
India. https://www.investindia.gov.in/schemes-for-electronics-manufacturing
[10] PIB. (2024, September). Document on recent developments in electronics and manufacturing policies. Press Information Bureau. https://static.pib.gov.in/WriteReadData/specificdocs/documents/2024/sep/doc2024925401801.pdf f
[11]
Congressional Research Service. (2024). China's industrial policy: An
overview. https://crsreports.congress.gov/product/pdf/IF/IF10964/4
[12]
Merics. (2019). Evolving Made in China 2025: The next phase. Merics. https://merics.org/en/report/evolving-made-china-2025
[13] Roy, D. (2024, October 8). Made in China 2025: A threat to global trade. Council on Foreign Relations. https://www.cfr.org/backgrounder/made-china-2025-threat-global-trade
