International Journal of Business Management & Research (IJBMR) ISSN 2249-6920 Vol. 2 Issue 3 Sep 2012 54-62 © TJPRC Pvt. Ltd.,
MANAGEMENT OF PAPER INDUSTRIES IN INDIA: PROSPECTS AND PROBLEMS MOHAMMAD ASLAM KHAN Research Scholar, Department of Management, Nims University, Jaipur Expectations of the Paper Industry from the Government
ABSTRACT The Indian paper and board industry offers many opportunities for the innovative use of limited resources. For a developing country like India, faced with increasing shortages of raw, materials, energy sources and capital, the development of the handmade paper industry offers considerable potential to meet the increasing demand for paper products in an environment-friendly way. In this paper, we aim to investigate India’s pulp and paper sector from various angles. We discussed our findings within a broader context of availability of raw material and government policies in the sector.
KEYWORDS: Paper industry, Handmade Paper, Manufacturing Unit. INTRODUCTION The paper industry in India is more than a century old. At present there are over 800 paper mills manufacturing a wide variety of items required by the consumers. These paper mills are manufacturing industrial grades, cultural grades and other specialty papers. The paper industry in India could be classified into 3 categories according to the raw material consumed. •
Wood based
•
Agro based
•
Waste paper based
While the numbers of wood based mills are around 20 and balance 780 mills are based on nonconventional raw materials. The Government of India has relaxed the rules and regulations and also delicensed the paper industry to encourage investment into this sector and joint ventures are allowed and some of the joint ventures have also started in India. The paper industry in India is looking for state-of-art technologies to reduce its production cost and to upgrade the technology to meet the international standards[1].
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Management of Paper Industries in India:-Prospects and Problems
It is estimated that the paper industry would be growing at the present rate of 9% of compounded rate and would required 25 million MT by the year 2020 from the existing production of around 17.2 million tones.
Figure 1: Projected Demand of Paper The demand is growing @ 9% to 9.5% CAGR per Annum and is likely to reach to 25 million MT by the year 2020. Paper industry in India is the 15th largest paper industry in the world. It provides employment to nearly 1.5 million people and contributes Rs 25 billion to the government's kitty. The government regards the paper industry as one of the 35 high priority industries of the country. Paper industry is primarily dependent upon forest-based raw materials. The first paper mill in India was set up at Sreerampur, West Bengal, in the year 1812. It was based on grasses and jute as raw material. Large scale mechanized technology of papermaking was introduced in India in early 1905. Since then the raw material for the paper industry underwent a number of changes and over a period of time, besides wood and bamboo, other non-conventional raw materials have been developed for use in the papermaking. The Indian pulp and paper industry at present is very well developed and established. Now, the paper industry is categorized as forest-based, agro-based and others (waste paper, secondary fibre, bast fibers and market pulp)[2]. In 1951, there were 17 paper mills, and today there are about 515 units engaged in the manufacture of paper and paperboards and newsprint in India. The pulp & paper industries in India have been categorized into large-scale and small-scale. Those paper industries, which have capacity above 24,000 tonnes per annum are designated as large-scale paper industries. India is self-sufficient in
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manufacture of most varieties of paper and paperboards. Import is confined only to certain specialty papers. To meet part of its raw material needs the industry has to rely on imported wood pulp and waste paper. Indian paper industry has been de-licensed under the Industries (Development & Regulation) Act, 1951 with effect from 17th July, 1997. The interested entrepreneurs are now required to file an Industrial Entrepreneurs' Memorandum (IEM) with the Secretariat for Industrial Assistance (SIA) for setting up a new paper unit or substantial expansion of the existing unit in permissible locations. Foreign Direct Investment (FDI) up to 100% is allowed on automatic route on all activities except those requiring industrial licenses where prior governmental approval is required. Growth of paper industry in India has been constrained due to high cost of production caused by inadequate availability and high cost of raw materials, power cost and concentration of mills in one particular area. Government has taken several policy measures to remove the bottlenecks of availability of raw materials and infrastructure development. For example, to overcome short supply of raw materials, duty on pulp and waste paper and wood logs/chips has been reduced. Following Measures Need to Be Taken to Make Indian Paper Industry ore Competitive 1.
Improvements of key ports, roads and railways and communication facilities.
2.
Revision of forest policy is required for wood based paper industry so that plantation can be raised by industry, cooperatives of farmers, and state government. Degraded forest land should be made available to the industry for raising plantations.
3.
Import duty on waste paper should be reduced.
4.
Duty free imports of new & second hand machinery/equipment should be allowed for technology up gradation.
PAPER INDUSTRY GROWTH CONSTRAINED BY RAW MATERIAL AVAILABILITY The paper industry is facing one of the most challenging times with sharp increase in import of coated paper and substantial jump in prices of key raw materials such as pulp, coal and chemicals. Companies have been forced to drop prices to meet cheap imports. The overall demand was dented by the ‘save tree' campaign and big corporate houses shifting to electronic mode for disseminating information to investors. The impending economic slowdown has also taken its toll. Mr Harsh Pati Singhania, Managing Director, JK Paper, feels that the troubles being faced by the industry are just a passing cloud. Mr Singhania, who is also the Vice-President of the International Chambers of Commerce India, analyses the future prospects in an interview with the Business Line. Excerpts: The current economic slowdown in India is starting to affect demand-growth for certain varieties of paper. It is therefore imperative that economic growth has to be revived. However, we
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Management of Paper Industries in India:-Prospects and Problems
believe this is a short term phenomena and long-term outlook for paper continues to be strong. The fundamental factors such as rising literacy levels, increase in business and commerce, expansion of retail and packaged consumer goods remain intact. The per capita consumption of paper and boards in India is also the lowest among the major developing countries. With these factors, we feel that, the paper market development in India will remain strong[3]. Of late, domestic companies were forced to cut coated paper prices to take on imports. Has the prices stabilised? Coated paper imports have been growing significantly. The US and the EU have imposed duties of roughly 47 per cent – anti-dumping and/or anti-subsidies duty – on Chinese coated paper. This has led to a sharp rise in exports from China to India and to some extent from Indonesia as well, depressing the domestic prices in India in this segment. High-end packaging boards have been affected because of price differential between domestic and imported prices. Branded copier paper has been slightly impacted due to increase in domestic capacity, but will correct itself in due course of time. Companies are shifting to electronic mode for Annual Reports and disseminating information. Do you see this impacting demand? The Government's thrust on education, rising level of literacy and several other factors like consumerism etc, have all led to increasing demand for printing and writing paper in recent years. While Annual Reports are now permitted to be sent in electronic form, this will not impact the demand in this sector substantially. They constitute a small part of the total consumption in the printing and writing paper category. In fact, overall demand for printing and writing papers continue to increase. What would be the impact of Government's new national manufacturing policy on the paper industry? India's paper industry's expansion and growth is constrained more by lack of raw material availability than any other factor. This is an issue that needs to be resolved or addressed urgently. NMP is more of manufacturing and investment zone. While this will boost FDI and even some large-scale Indian investment, it is too early to assess whether new paper units will be sited in these zones due to their requirements for raw material and coal linkages, water and other resource availability. Of course, the increase in share of manufacturing in India's GDP as targeted by National Manufacturing Policy will have a positive impact on the consumption of paper and boards. Should Government take up labour reforms along with the new NMP? Labour reforms are important because they do affect investment as also growth. Rigidities in labour usage come in the way of optimum allocation of resources and also hinder job creation rather than helping it. This is one of the reasons why manufacturing is not growing as much as desired in India. The State Governments have an important role to play in this matter as the implementation of labour laws lies in the hands of State Governments.
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GROWTH FACTORS CONFRONTING INDIAN PAPER INDUSTRIES The ASSOCHAM indicated that per capita paper consumption increased to 9.18 kg during 2009-10. Earlier it was 8.3 kg throughout 2008-09. However, the figure (9.2 kg) is low in comparison to 350 kgs per capita in several developed countries and forty two kg in China. Nevertheless, when per capita paper consumption is considered, India emerges to fastest growing market with a strong 10.6% growth registered during 2009-10. Paper production in India includes several types which are regularly and largely used in printing and packaging, writing, and a few specialty papers. Paper for printing and writing come as copier paper, super printing paper, bond paper, creame wove paper, map litho paper (surface size and non-surface), coating base paper and others. Paper for packaging includes boards, Kraft paper, posters and others. Other varieties are chromo paper/board, art paper/board and others. In India there are approximately 600 paper mills among which twelve are major players and also world renowned. In India of total paper production 40% is from hardwood and bamboo fiber 30% is from agro waste other 30% from recycled material. Paper used for publications and Newsprint counts to 2 million tonnes. 1.2 million tonnes of newsprint are manufactured and the remaining is imported from other producers. It means that, about 40% of newsprint is brought in from outside the country. Coming to pulp imports, India imports around 2 million tonne pulp wood (both soft and hard) and waste paper (sack waste for envelopes waste, unbleached grades, magazine waste and cup stock for white grades) for newsprint. The paper industry in India can be made more competitive by improving key sea ports, airways, road, railways and communication facilities. Plantations have to be raised by whatever means like industry, cooperative farmers and state governments to support wood based paper industry. For this the forest policy has to be accordingly revised. Degraded forest lands can be used to raise wood pulp plantations. Custom Duties on waste paper imports might be reduced, new & second hand machinery/equipment imports should be allowed duty free for a simpler and affordable technology up gradation[4]. Paper made products like filter paper, tea bags, tissue paper, medical grade coated paper, light weight online coated paper etc. are significantly rising in terms of usage in Indian markets hence Paper industry in India can look an extremely positive intent ahead. ASSOCHAM quoted the following challenges confronted by India's pulp and paper industry 'high cost of production caused by inadequate availability and high cost of raw materials, power cost and concentration of mills in one particular area, non-availability of good-quality fiber, uneconomical plant size, technological obsolescence and environmental challenges[5].' Indian markets buy pulp wood at $50 per metric tonne which is comparatively more than several other international players buying for just $30. While issues related to technology, capacity and
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environment come directly under the purview of companies; raw material shortage is a disadvantage affecting all domestic companies. Many mills in India don't have integrated wet-end systems in overall control strategy. Forward control strategy results in impressive quality gains. Similarly energy, a significant cost in production cycle, is also paid less attention in terms of monitoring overall consumption of power across various sections of the plant. Electrical system integration, intelligent motor control centres with DCS (Distributed Control Systems) all will monitor overall energy consumption. Another area is integration of real-time information system on raw material flow which ultimately controls quality at various stages[6]. There is a lack of coordination between the automation department and IT within the mill. ERP systems, supply chain management systems and manufacturing execution systems (collaborative production management systems) are not paid adequate attention from the Indian paper industry players. Result, Indian Pulp and Paper industry has more to achieve to be the best and efficient in the world. Traditional automation systems cannot help businesses survive in present day world industrial scenario. Integrated automation along with enterprise systems can enable Indian Pulp and Paper industries to gain competitive advantage[7].
EXPECTATIONS OF THE INDUSTRY FROM THE GOVERNMENT The Government has taken several steps to make availability of raw materials and infrastructure development to overcome the shortage of raw materials. Duty on plup waste paper, wood logs/chips has been reduced. The Indian Paper Mills' Association(IPMA), has suggest to setting up of a Rs. 20,000 crore 'paper fund'. IPMA also, suggested to setting up existing technology upgradation fund (TUF) for improvement of energy conversation, quality upgradation and product improvement. The Indian paper industry is growing at 8 per cent per annum. It is also, expected to grow by 10 per cent by the year 2010. IPMA also, urged the Government to reduce the excise duty from 12 per cent to 8 per cent for all type of paper mills as they are looking to upgradation of 25 per cent of their capacity. Indian paper industry has direct linkage with educational sector, manufacturing sector, as a result near about 20 per cent direct and indirect taxation on paper industry including 12% VAT, octroi, etc. Reduction of direct and indirect taxation can make more competitive player in the world. The following measures can be taken to make Indian Industry more competitive:
RAW MATERIAL (i) For Wood based industry: The Indian paper and newsprint industry already urges the Government to amend the laws for immediate revision of forest policy so that plantation to make use of the degraded land for raising plantations for better quality of plup. But, the Government does not permit forests to be used for sourcing woods by the corporate sector, nor does it allow industrial plantation on degraded forestlands.
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(ii) For Waste Paper based Industry: Less export duty on Import of waste paper. Introduction of "Ecolabelling" system where in products made from recycled fibre are rated higher than the products made form virgin fibre. Introduction of modern and effective collection and grading system. (iii) For Agro based industry: Funds to be made available for technology modernization and processing of
agro
residue
fibre,
particularly
for
small
&
medium
scale
paper
industries.
Infrastructure Improvements of communication e.g. rail, road, port which will help the entire industrial sector. Technology Up gradation There is a wide gap between the technologies of the domestic paper industry in India compared to that of the foreign countries. Most of the paper mills are using old technologies, which is serious cause of resultant in low productivity with high costs of production. Government Policies (i) Social forestry scheme should be introduced to small and marginal farmers to promote sapling and know-how for raising plantations of fast growing trees with an assurance of a buy back at a remunerative price. (ii) The industry is also seeking permit duty free imports of new & second hand machinery/equipment for Technology Up gradation. (iii) Right now, an estimated 55-million begasse is available, but currently we are using only 8%. Begasse can be introduced in replace of using bamboo, rice or white straw.
NEWSPRINT PRICES WITH UNPRINTABLE TAG Virtually paper industry is decontrolled and there is no price control on finished product. As a result entire cost has shifted upon the end-users. Newsprint prices increase sharply by 24% in a short span of three months to touch a high of $760 per tone, an increase of $145 since December 2007. India also, imports bulk of newsprint from foreign countries. From North America we have imported 18.9 lakh tonnes in 2004 to 26.45 lakh tonnes in 2007, a CAGR of 11.9%. Domestic consumption move up by 6.40 lakh tonnes to 9.70 lakh tonnes, a CAGR 14.9%, while import went up by 12.50 lakh tonnes to 16.75 lakh tonnes, a CAGR of 10.3%. It has been estimated that domestic demand will touch 35.54 lakh tonnes in year 2009. In a recent development, US-East Coast prices increased; as a result the ex-mill rates, ready for shipment, risen from $608 to $710 per tonne, an increase of $ 102 in just three months, it may gallope to $770 by the end of Q3 2008. Last year, India had purchased imported newsprint at very economical rates. It has several reasons. i) Mass production by International Paper Manufacturer
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Management of Paper Industries in India:-Prospects and Problems
ii) Declining demand from UK and part of the Europe forced paper products to sell at economical rates in India. iii) China was another fear factor. Trends have reversed in North America. They went for changing product mix, cutting excess capabilities and consolidation through buyouts. At the beginning of 2007, they supply 40.5 million tonnes, which exceeded demand of 38.3 million tonnes. At the early 2008, two million tonnes of production had fallen; as a result prices rose up. In China, old newsprint, which is one of the raw materials for paper industry, nearly double to $270 per tonne in span of just 5 to 6 months. Rising Crude price also, affect on freight rates. Recently, crude prices breached the mark $140, as a result plup prices increase from $575 to $750 per tone. Despite the growing demand for paper industry, there should be new policies/projects to overcome the acute shortage of raw materials and infrastructure development. As global industry is not flourishing, with the help of implementation of setting up institutional mechanism for funding technology upgradation, relax environmental laws to encourage captive plantations for raw materials, we expect that in near future India may become market leader in paper industry.
CONCLUSIONS The paper sector has been marked by continuous shortages in supply of various products, especially white printing paper and newsprint. Meeting future demand, which is expected to increase considerably, will continue to be a challenge as major expansion and modernization efforts would have to be undertaken while raw materials scarcity prevails and price development on international markets is unfavorable to the industry. Future production has to be economically viable and environmentally sound and needs to be more efficient in terms of resources use and production. In this paper, we investigated India’s pulp and paper sector from various angles. We discussed our findings within a broader context of availability of raw material and government policies in the sector.
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