A Trillion-Dollar Dream Requires Smarter Industrial Policy: Global Lessons from Bangladesh's FY27 Budget

Industrial Policy Returns: Global Consensus and Bangladesh's Lag

Over the past decade, major global economies have clearly abandoned market fundamentalism in favor of proactive industrial policies. The United States has directly subsidized $39 billion through the CHIPS and Science Act to rebuild domestic semiconductor manufacturing; the EU invested €67 billion between 2014–2020 in "smart specialization" programs to accelerate innovation; Germany, France, Japan, and the UK have all launched national strategies targeting electric vehicles, renewable energy, and advanced manufacturing. As Project Syndicate stated in 2023: "Industrial policy is back."

However, while Bangladesh's industrialization story is impressive, it rests on fragile policy foundations. Its manufacturing success has relied primarily on two pillars: first, the ready-made garment industry, which benefited from quota preferences under the Multi-Fibre Arrangement—an external opportunity rather than an internal design; second, the momentum of the domestic market, where groups like RFL and Walton have risen through entrepreneurial spirit and a large consumer market. Neither case was driven by a coherent industrial policy. What Bangladesh currently maintains is, strictly speaking, not a strategic industrial vision but a fragmented list of incentives spread across too many sectors, making it difficult to achieve transformative results in any area.

FY27 Budget: Supply-Side Generosity, Demand-Side Absence

Bangladesh's FY26-27 national budget, centered on the "3R Strategy" (Recovery, Reconstruction, Restructuring) and the goal of building a trillion-dollar economy by 2034, introduces numerous supply-side measures: a 10-year graduated tax holiday for edible oil producers using domestic oilseeds; zero tax rate for the solar energy industry through 2035; full duty and tax exemptions for local EV manufacturing and assembly through 2030; import duty exemptions for semiconductor chip design and pharmaceutical raw materials; and a Tk 60,000 crore stimulus package offering 6% interest subsidies.

These measures are well-intentioned but share a common limitation: they are entirely supply-side. They reduce production costs but fail to guarantee markets; they lower entry barriers but do not ensure buyers are waiting—especially for industries with high fixed costs. This is precisely the historic opportunity missed in the budget.

Public Procurement: The Strongest Lever of Industrial Policy

The most powerful tool in the industrial policy toolbox is not tax exemptions but the government's purchasing power as the economy's largest buyer. When the government announces that it will only procure buses, computers, medical equipment, or solar panels that meet minimum local content requirements, it does not merely reward domestic producers—it creates the market itself. The FY27 budget, despite its fiscal generosity, completely fails to deploy this lever.

Case 1: Bangladesh's Ready-Made Garment Industry

The rise of Bangladesh's ready-made garment industry provides the clearest example. Export quotas under the Multi-Fibre Arrangement provided demand certainty for Western markets, enabling investors to build factories, import machinery, and train workers. The risk was not borne by the market; the policy framework guaranteed buyers.

Case 2: China's BYD### Case 2: China's BYD

The process by which BYD became the world's largest electric vehicle manufacturer also demonstrates the power of demand-side policies. Shenzhen used public procurement and purchase subsidies to create demand for electric buses and taxis, while China's "Ten Cities, Thousand Vehicles" program instructed cities to procure new energy vehicles for public fleets. Manufacturers effectively obtained a government-guaranteed market while climbing the learning curve.

Case 3: South Korea's Industrialization

South Korea's steel, shipbuilding, and electronics companies were not globally competitive at the outset. They benefited from guaranteed access to the U.S. market, achieving large-scale exports that enabled production scale and technological upgrading, ultimately winning international competition. In each case—Bangladesh's garments, China's electric vehicles, South Korea's heavy industry—the state, as a direct buyer or guarantor of market access, provided demand certainty, thereby unleashing private investment, achieving scale, and accelerating learning.

India's Model: A Dual Approach of Procurement and Incentives

India offers the most contemporary and replicable model of procurement-led industrial policy for Bangladesh. Through the 2017 "Public Procurement (Preference for Make in India) Order," suppliers are classified by local content. Class I suppliers, with a local content of 50% or more, receive absolute priority in government tenders, while suppliers with less than 20% local content are effectively excluded from many procurement categories. Specific requirements vary by sector: government vehicle procurement requires 65% local content, auto parts 60%, desktop computers 45%, laptops 40%, and certain smart cards up to 70%. In medical equipment, dozens of products can only be procured from Class I suppliers.

The system is supported by strict enforcement: suppliers must certify local content, large contracts require independent verification, and false declarations can lead to disqualification. The policy is reinforced by the Production-Linked Incentive (PLI) scheme, which rewards enterprises that meet domestic value addition thresholds. Together, procurement preferences and production incentives form the "stick" and "carrot" of India's industrial strategy, compelling global companies to shift manufacturing bases to India rather than merely import and label finished products.

Bangladesh's Path: From Incentive Lists to Strategic Restructuring

For Bangladesh, the way forward requires not just fiscal generosity but a fundamental reimagining of the relationship between public spending and industrial strategy.

Step 1: Making Strategic Choices

Bangladesh must make tough choices like South Korea did in its formative years: identify a few industries in which it intends to compete globally, and then mobilize all the country's tools—fiscal, monetary, regulatory, and institutional—to support that strategy, rather than spreading limited incentives thinly across too many sectors as it currently does.

Step 2: Introducing Local Content Requirements

Introduce mandatory local content requirements in all major government procurement projects, with targets to be phased in over time. For example, government vehicle procurement could require 40% local content from 2027, increasing to 60% by 2030; medical equipment procurement could set a similar trajectory.

Step 3: Establishing Enforcement and Certification Mechanisms### Step 3: Establish Enforcement and Certification Mechanisms

Drawing on India’s experience, set up an independent local content certification body to audit major contracts and impose strict penalties for false declarations. At the same time, combine procurement preferences with production-linked incentive schemes to form a complete "carrot and stick" system.

Step 4: Focus on High-Potential Sectors

Bangladesh can leverage its existing strengths: extending the ready-made garment industry into high-end manufacturing, using low labor costs for electric vehicle assembly, aligning solar panel manufacturing with domestic renewable energy targets, and targeting pharmaceuticals and semiconductor packaging as entry points for technological upgrading. These industries should be closely integrated with procurement policies to create an initial market driven by government orders.

Conclusion: A Trillion-Dollar Economy Requires Policy Wisdom

Bangladesh’s FY27 budget is a starting point, but far from the finish line. A country aspiring to reach a trillion-dollar economy by 2034 cannot use only half of its policy tools. Public procurement is not a technical footnote in government financial operations—it is one of the most powerful engines of industrial transformation ever devised. From the United States to China, from the European Union to India, governments around the world are rediscovering the power of this tool. If Bangladesh wants to break through in the next phase of industrialization, it must upgrade public procurement from an administrative procedure to a core pillar of the national industrial strategy. Only then can the trillion-dollar dream turn from a number into reality.