• HDFC securities
• 01 Sep 2018
• Knowledge Centre

According to a report by the Associated Chambers of Commerce and Industry of India (ASSOCHAM), the Indian paper industry is poised for growth. It is expected to reach a substantial figure of 2.5 crore tonnes in FY20 from 2.03 crore tonnes in FY18, an annual growth of 10%.

 

According to the ASSOCHAM paper, India has emerged as the fastest-growing market when it comes to consumption of paper, posting 10.6% growth in the per-capita consumption in FY18.

 

Some hiccups

 

One of the main challenges faced by the Indian paper industry is the incessant increase in price of key raw materials i.e., wood and pulp. In 2017, the price of international hardwood pulp surged from US$ 200 per tonne US$ 690 per tonne. Owing to supply-side problems, price of Kraft paper increased by 23%. In addition to this, production in the pulp mills in Indonesia and Brazil decreased on account of environmental concerns.

 

Other challenges faced by the paper industry highlighted in the ASSOCHAM paper are:

 

• High power costs,
• Concentration of mills in one area, 
• Non-availability of good-quality fiber, 
• Uneconomical plant size, 
• Technological obsolescence and 
• Environmental challenges.

 

Mr Saurabh Bangur, President of the Indian Paper Manufacturers Association and Vice-Chairman of West Coast Paper Mills Limited was quoted in a report as saying, “The Indian paper industry’s raw material challenge is big, because prices are higher as compared to global players, where the cost of production is cheaper. They have their own captive plantations. We have to depend on other agencies for raw material procurement.”

 

An additional need was said to be that of industrial plantation policies, which will allow the growing of wood on a large scale, thereby reducing costs. This, in turn, will lower the cost of the production of paper.

 

Mr Abdul Karim, Research Analyst, HDFC securities, says, “In India, many companies have started backward integration, or put up captive plantation facilities and various strategies for plantations, as well as farm forestry programmes in order to improve operational efficiencies and save costs. Therefore, the cost of raw material has relatively declined as compared to the last few years.”

 

Future prospects

 

One positive for the paper industry in India is that the demand for upstream paper products, such as tissue paper, tea bags, filter paper, lightweight online coated paper and medical grade coated paper, is growing.

 

The growth story of the Indian paper industry could be supported by a number of measures. For one, the industry could become more competitive with the upgrade of key ports, roads & railways, and communication facilities.

 

Another facet that could trigger growth in the wood-based paper industry is the revision of the forest policy. This would enable plantations to be raised by the industry, farmers’ cooperatives and state governments. Also, degraded forest land should be made available to raise plantations, and import duty on waste paper should be reduced.
In addition to these, duty-free imports of new and second-hand machinery/equipment should be allowed for technology upgrade, the report stated.

 

However, there is a belief that the situation will improve in the future. Mr Karim explains,

 

“Despite the continued focus on digitization, India's demand for paper is expected to continue to rise in the next few years, primarily due to a sustained increase in the number of school-going children in rural areas. Growing consumerism, modern retailing, rising literacy, and the ban on the use of plastic in packaging items like food and beverages could boost the demand for paper and paper products going forward. The industry is expected to grow at 7.5% in next five to six years.”