India’s garment-making success has started to fray at the seams. Once a leading supplier of apparel to western clothing lines, its exports have stagnated and remained at $17 billion for the past three years. It is not that the demand has shrunk.

Instead buyers have moved to neighbouring Bangladesh, which is riding on free trade agreements (FTAs) and lower wages to edge out competitors in international market. During the time India saw a slide in exports, Bangladesh nearly doubled its shipments. In the eight months till November in the current fiscal, India's exports ...