Paper mills in unorganised sector face huge difficulties due to the implementation of the goods and services tax (GST), their lack of competitiveness to install green technology and disappearance of informal and cash trade. The government should facilitate the integration of unorganised sector players into the formal system, says Saurabh Bangur, Vice Chairman, West Coast Paper Mills Ltd and President of Indian Paper Manufacturers' Association (IPMA) in an interview with Dilip Kumar Jha. Edited excerpts:
What is driving cheaper imports of paper in India?
India is a fibre-deficit country. With raw materials accounting for around 50 per cent of the cost of production, availability of fibre is the biggest constraint faced by Indian paper industry. For example, availability of wood in India is estimated at 9 million tonnes per annum (TPA) against its total requirement of 11 million TPA. Hence the price of wood in India is quoted $30-40 higher than the prevailing in ASEAN countries. This raises the cost of paper production in India by $100 per tonne making Indian paper industry non-competitive.
How Will GST change business dynamics for paper mills?
The goods and services tax (GST) is expected to have an overall positive impact on paper manufacturers, especially in the organised sector. The entire supply chain will become more efficient. The GST on imports will provide some relief to domestic paper manufacturers. Exports to other countries will also get some boost, with a full refund of input tax credit to the manufacturers.
Do you see industry consolidating due to GST, cheap imports, and demonetisation which extinguished cash transactions in the paper sector?
Paper industry is a capital-intensive and energy-intensive business. Smaller or unorganised sector players do not have the resources for such capital expenditure. Additionally, achieving economies of scale to reduce per unit cost of output is also a driving factor. But, players in the unorganised sector work on outdated technologies. We do not foresee their merger happening with organised sector players. Paper industry globally is witnessing a move towards consolidation.
What are major challenges for Indian paper industry?
Domestic paper manufacturers find it difficult to be globally competitive due to non-availability of raw materials like wood, agro residue or recycled fibre which significantly impacts the cost of paper production. Due to lack of competitiveness, cheap imports are growing. Imports of paper and paperboard at zero duty under the free trade agreements (FTAs) have compounded the problem. Under the India-Korea CEPA, the basic customs duty has been progressively reduced and will be 0% with effect from January 2018. Imports of paper and paperboard into India from ASEAN in the last six years have grown at a CAGR of over 42 per cent. Imports from South Korea have grown at a CAGR of 60 per cent.
How are you planning to ensure higher wood supply?
The government should consider making available some part of the country's degraded forest land for pulpwood (+ fuel wood/fodder) plantations under a collaborative arrangement, so that the Indian paper industry can access raw material at competitive rates and become globally competitive. Even providing 10% of degraded forest land for raising pulpwood plantation in collaboration with paper industry would make available approximately 2.5 million hectares of productive plantation.