Duty cut looks good only on paper

The excise duty cut to 12 per cent from 16 per cent is likely to bring down prices. However, the industry expects the impact to be minimal and short-term.

The paper industry is likely to witness a marginal reduction in prices, following the Budget announcement of an excise duty cut to 12 per cent from 16 per cent.

The likely drop in price, say experts, will be welcome since in the last one year the industry has seen an average price rise of about Rs 2,000-2,500 per tonne. They, however, caution that the price cut, if any, will be minimal and short-term.

R R Vederah, joint managing director of Ballarpur Industries said, "It's too early to comment if the cut is coming as we are yet to do number crunching." The industry's demand for duty rationalisation has come via the cut in excise duty.

"About 65 per cent of the sector is already witnessing the 12 per cent duty. The budget has streamlined the excise duty for the whole sector," said R R Narayana Murthy, secretary general, Indian Paper Manufacturers' Association.

The customs duty for the sector, which attracts peak duty, has also been reduced to 12.5 per cent from 15 per cent.

Vederah said since the duty was being brought down in phases, it would help introduce a level-playing field. Further, the 4 per cent countervailing duty (from the current 16 per cent) would help neutralise state taxes such as value added tax and octroi, thus helping the industry, he added.

According to Pradeep Dhobale, chief executive offer, (paper division), ITC, "The Budget is quite forward looking and in the right direction. Further, the cut in import duty to 5 per cent from 15 per cent for packaging machinery will benefit the paper packaging business".

The Budget speech identified the paper sector as one of the thrust areas, which can also act as a "job-enabler". Industry members feel such mention in the Budget will help the paper sector grow in 2006-07 ""higher than the 7-8 per cent estimate.

The sector is also fighting rising costs. Raw material costs have risen 30 per cent in the last two years while that of coal by about 20 per cent in the last one year.

The trend can be ascertained by the fact that raw material comprises 50 per cent of the input cost, and energy another 20 per cent.

To boost the sector's potentials, there is a need for investment in the backward linkages, such as wood, baggasse and waste paper.

IPMA estimates that India has an annual production of 60 lakh tonne of paper with the demand seeing an average rise of 5-5.5 per cent. Imports were minimal given the 16 per cent duty.