Examining Industrial Policy from Bangladesh's Trillion-Dollar Goal: How Government Procurement Becomes a Lever for Manufacturing Upgrades

Industrial Policy Returns: Why Governments Are Picking Winners Again

The U.S. CHIPS and Science Act injected $39 billion in direct subsidies to rebuild semiconductor manufacturing. The EU invested €67 billion from 2014 to 2020 in its "smart specialization" strategy. Germany, France, Japan, and the UK have successively launched industrial plans targeting electric vehicles, renewable energy, and advanced manufacturing. As *Project Syndicate* put it, "Industrial policy is back." As global manufacturing competition intensifies, governments are no longer content with passively providing a business environment; instead, they are actively designing, nurturing, and protecting strategic industries.

Bangladesh's FY2026-27 budget, framed around the "3R Strategy" (Recovery, Restoration, Reconstruction), proposes a series of supply-side incentives: a 10-year graded tax exemption to encourage domestic oilseed production for edible oil, zero tax for the solar power industry until 2035, full tariff exemption for local EV manufacturing and assembly until 2030, duty-free imports for semiconductor chip design and pharmaceutical raw materials, and a Tk 600 billion stimulus plan with 6% interest subsidies. These measures aim to lower production costs, yet they lack a critical element: how to ensure there is a market for the products?

The Neglected "Demand-Side" Engine: Government Procurement

The two pillars of Bangladesh's industrialization—the garment industry and domestic consumer goods giants (such as RFL, Walton)—did not arise from systematic industrial policy. The garment sector benefited from quota preferences under the Multi-Fibre Arrangement, while domestic giants relied on entrepreneurial spirit and a vast domestic market. Such "accidental success" cannot sustain the ambition of reaching a trillion-dollar economy by 2034.

The real policy lever is the purchasing power of the government as the largest buyer in the economy. When the government announces that it will only buy buses, computers, medical equipment, or solar panels that meet minimum local content requirements, it is not rewarding producers but directly creating a market. Yet Bangladesh's FY27 budget completely fails to use this lever.

India offers the most replicable template for the contemporary era. Its 2017 Government Procurement (Preference for Make in India) Order classifies suppliers into tiers based on local content: Class I suppliers (with local content over 50%) enjoy absolute priority in government tenders, while suppliers with less than 20% local content are excluded from many categories. Specific requirements include 65% local content for government vehicles, 60% for auto parts, 45% for desktop computers, 40% for laptops, and up to 70% for smart cards. In addition, the Production Linked Incentive (PLI) scheme provides financial rewards to companies that meet value-addition thresholds. Procurement preferences combined with production incentives create a "carrot and stick" approach, forcing multinational companies to set up factories in India rather than simply importing and rebranding.

China's Practice: From "Ten Cities, Thousand Vehicles" to Global EV Champion

China's experience also confirms the catalytic role of government procurement.China’s experience also confirms the catalytic role of government procurement. BYD’s rise to become the world’s largest electric vehicle manufacturer owes much to demand created by cities like Shenzhen through public procurement and purchase subsidies. The “Ten Cities, Thousand Vehicles” program directly required local government fleets to purchase new energy vehicles, providing manufacturers with a government-guaranteed market that helped them climb the learning curve. Today, China’s new energy vehicle penetration rate exceeds 50%, and government procurement played a crucial role in the early stages.

South Korea’s industrialization followed a similar path. Before becoming global competitors, Samsung, Hyundai and other companies relied on the export scale provided by the U.S. market—essentially a form of “international market procurement guarantee.” The American market’s acceptance of Korean products effectively absorbed the demand-side risk.

Lessons for Bangladesh: Supply and demand must go hand in hand

Bangladesh’s current industrial policy is closer to a “scattered list of incentives” than a strategic choice. A true industrial policy requires making difficult decisions, selecting a few areas that can compete globally, and then deploying all policy tools—fiscal, financial, regulatory, institutional—to fully support them. Among these, government procurement should be included as a core instrument in top-level design.

An economist who has been exposed to Bangladesh’s policymaking pointed out that the country has not yet, as South Korea did back then, clearly screened and fully supported a few strategic industries. India’s model shows that even with limited administrative capacity, tiered procurement requirements can gradually drive local manufacturing. If Bangladesh introduces a “local content preference” clause in FY27 or subsequent budgets, it will effectively connect supply-side incentives with demand-side markets.

Long-term trend: The manufacturing contest intensifies

From the perspective of global supply chain restructuring, industrial policy has shifted from “whether to intervene” to “how to intervene precisely.” As the United States, the European Union, and India use procurement, subsidies, and localization requirements to build moats for reshoring manufacturing, developing countries that only offer tax breaks will struggle to attract high-quality investment. Government procurement not only creates domestic demand but also serves as a bargaining chip to demand technology transfer and localized production from foreign investors.

For China, the domestic “Administrative Measures for the Promotion of Small and Medium-sized Enterprises through Government Procurement” and certain domestic preference policies have long been in place, but systematic, publicly announced localization requirements are not yet widespread. If India’s PLI model is taken as a reference, existing new energy vehicle subsidies and solar photovoltaic leader programs could be more closely integrated with government consumption-side procurement to form a closed loop.

Although Bangladesh’s FY27 budget has not yet taken this step, the discussion itself already marks a shift in policy thinking toward “demand-side industrial policy.” For any economy aspiring to upgrade its manufacturing, this may be the most noteworthy lesson.