Rao: New strategy
Dhaka, Dec. 3: Indian firms such as Larsen & Toubro, Raymond and Ceat have lined up investments in Bangladesh to tap its lower labour and production costs.
“Indians are already big investors here. Besides the existing investment, Indian firms such as Larsen & Toubro, Ceat, Raymonds, Arvind Mills and Emami have joint venture proposals in the pipeline,” said India’s commerce secretary S. R. Rao on the sidelines of an event showcasing the country here.
Analysts estimate Indian businesses to add about $1 billion in the next two years to the existing $1.2-billion investment and ratchet it up to over $5 billion in the next five years.
Bangladesh’s commerce minister Ghulam Muhammed Quader said, “We offer the most liberal investment package to set up either fully owned or joint venture industry here.”
Talks are on for a special economic zone exclusively for Indian units, though acquiring land in the over-populated country may pose a challenge.
India wants to follow what Germany and Japan did about two decades ago — shift low-cost manufacturing to neighbouring nations which need investment and jobs to remain globally competitive. India itself will focus on high-skilled or high value-added businesses. China, too, is following such a policy.
“We don’t want to push sales of Indian goods into Bangladesh. Rather, we want to push our business to set up manufacturing base for exports back home,” said Rao, who is heading a delegation organised by the Federation of Indian Chambers of Commerce and Industry (Ficci).
Rao’s statement reflects a harsh economic logic for firms such as Arvind Mills. It costs 1.5-1.8 times more to produce the same shirt in India than in Bangladesh.
The country has about 25,000 hectares under rubber cultivation. Yet prices remain depressed, which is attractive enough for tyre makers such as Ceat.
Rao’s logic has also been bought by Prime Minister Manmohan Singh. The PMO is believed to have approved a policy to urge Indian businesses, whose costs have risen to uneconomic levels, to move out and concentrate on high value-added processes back home.
Tirupur, the garment hub in Tamil Nadu, started facing competition from low-cost manufacturers such as Bangladesh, Cambodia and Vietnam long before the Wall Street collapse and the subsequent financial crisis in western markets drove most of its factories to pull down their shutters.
“We can also look at joint ventures with Bangladesh in areas such as infotech, BPOs, auto parts, tyres and pharma, besides current favourites like textiles, leather and telecom,” said R.V. Kanoria, president of Ficci.
“On the political logic, we need to invest and sell back home because of the brutal one-sided trade surplus. We sell $4.5 billion worth of goods to Bangladesh and import one-sixth of that figure,” pointed out Rao. “We cannot continue with that.”