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Industry Expectations
Customs duty for import of Paper and Paperboards should be increased and brought in line with agricultural products as currently industry is sourcing majority of its raw materials from Agro-forestry.
This category to be kept in the Negative List (i.e., no preferential treatment) in bi-lateral and multi-lateral trade treaties and agreements.
The market size in India for disposable cups is close to 40 billion cups per year out of which 10 billion cups are paper cups.
The balance 30 billion is plastic cups -- here too there are two varieties viz., HIP (High Impact Polystyrene) and PP (Polypropylene).
Among plastic cups, 60% of the market is for PP, 30% is for Recycled HIPS and 10% is for Virgin HIPS.
Poly coated paperboard is used for manufacture of paper cups, which contains more than 90% by weight of biodegradable food grade paperboard and is an eco-friendly substitute for plastics.
The global trend is to actively discourage the use of plastics (which do not conform to requisite hygiene and environmental standards) and to replace it with poly coated paper/paperboard.
In India major consumers of this type of paper/paperboards are SSI/SME units engaged in manufacture of paper cups that are increasingly being supplied to institutional customers like the Railways, the FMCG sector and the household sector.
Paper cups are used for mass consumption items such as tea, coffee, fruit juices, soft drinks, ice cream etc.
Paper and paperboard that is coated/impregnated/covered with poly coating are classified under Central Excise Tariffs 4811 51 90 (Bleached, weighing more than 150 g/m2 - Other) and 4811 59 90 (Other - Other) with an excise levy of 12.5% ad valorem -- even as a large number of paper/paperboard items covered by Central Excise Tariff 4802, 4804, 4805, 4807, 4808 and 4810 are excisable to excise duty only at 6% ad valorem.
Further SSI/SME Units are not able to avail Cenvat credit for the excise duty paid on the base board used for manufacture of poly coated paper cups.
It is recommended that excise duty on poly coated paper/paperboards, classifiable under Central Excise Tariffs 4811 51 90 (Bleached, weighing more than 150 g/m2 - Other) and 4811 59 90 (Other - Other) be reduced to 6% from 12.5% - in line with most other paper/paperboards classifiable under Chapter 48. Such a move will also be a “green” initiative in line with global trends.
India is a wood fibre deficient country, with the domestic demand-supply gap in wood widening every year.
Raw materials constitute 35-40% of cost of paper production. Currently, the wood and bamboo demand of the country’s Pulp & Paper Industry is around 11 million tonnes against availability of 9 million tonnes per annum.
The demand is expected to increase to 15 million tonnes by 2024-25.
India being a fibre deficient country, indigenous paper manufacturers are forced to use a variety of raw material such as wood, agro-residues, waste paper, etc.
Because of this reason the domestic paper producers import substantial quantities of wood pulp and waste paper to meet the raw material deficit.
On account of the significant demand-supply gap in respect of the primary raw material for the industry, the cost of wood has gone up exponentially over the last few years.
Shortage of supply with exponential rise in prices of wood is adversely impacting the competitive edge of the industry and the domestic manufacturers are ceding ground to cheaper imports. It is therefore, important to bring down the cost of domestic as well as imported raw material.
In India, the total import duty presently on the primary raw material -- wood logs/chips -- is 9.27%, with the basic customs duty at 5%.
It is important to mention here that under the India-ASEAN Free Trade Agreement, wood logs/chips imports attract ‘nil’ rate of basic customs duty.
In order to reduce input cost of wood, the government should introduce ‘zero’ rate of customs duty for all heads on import of wood logs/chips (HS No. 44011010, 44012100, 44012200).
In view of the fact that Soft Wood cannot be grown in the country, requirement of Soft Wood Pulp will have to be met through the import route only.
However, for Hard Wood Pulp the domestic industry is working closely with the farming community to create sustainable supply of wood -- a key raw material for hard wood pulp -- through re-development of waste-lands.
Full exemption from excise and VAT taxes for paper and paperboard produced using clean technology.
Exports by manufactures who have adopted environmentally friendly technology should be granted additional incentives in the form of cash incentive of 5% of FOB.
Accelerated tax depreciation @ 150% of the normal depreciation rates under income tax laws for investments on environment friendly technology, should be provided to the industry.
Manufacturers who have already adopted internationally recognized clean technologies, at considerable investment, should be incentivized and encouraged by way of being exempted from levy of any clean energy cess.
Industry Overview
The Indian Paper/Paperboard industry has made significant capital investments to ramp-up capacities for meeting domestic requirements.
The Industry has strong backward linkages with the farming community, from whom wood, which is a raw material, is sourced.
A large part of this wood is grown in backward marginal/sub-marginal land, which is potentially unfit for other use.
This industry, being mainly based in backward areas, has transformed the socio economic conditions of the population residing there.
It is, therefore, strategically important and also necessary to keep Paper/
Paperboard industry, outside the ambit of FTA’s (ASEAN etc.) and recognize this Industry as “sensitive” deserving special treatment. Increased imports from foreign countries are severely impacting the economic viability of many paper mills in India.
India is a wood fibre deficient country, with the domestic demand-supply gap in wood widening every year. Raw materials constitute 35-40% of cost of paper production.
Currently, the wood and bamboo demand of the country’s Pulp & Paper Industry is around 11 million tonnes against availability of 9 million tonnes per annum.
The demand is expected to increase to 15 million tonnes by 2024-25.
India being a fibre deficient country, indigenous paper manufacturers are forced to use a variety of raw material such as wood, agro-residues, waste paper, etc.
Because of this reason the domestic paper producers import substantial quantities of wood pulp and waste paper to meet the raw material deficit.
On account of the significant demand-supply gap in respect of the primary raw material for the industry, the cost of wood has gone up exponentially over the last few years.
Shortage of supply with exponential rise in prices of wood is adversely impacting the competitive edge of the industry and the domestic manufacturers are ceding ground to cheaper imports. It is therefore, important to bring down the cost of domestic as well as imported raw material.
Analyst Expectation
Do not expect any major announcements for Paper industry.
Stocks to watch
BILT, TNPL, West Coast Paper Mills and JK Paper
Outlook
In the given measure of global competitiveness, the domestic paper industry is at a significant disadvantage since it has no access to captive plantation in India to manage raw material availability and cost, while global players have in-built advantage of conducive plantation policies and ability to procure wood at favorable cost.
The government should immediately bring an enabling plantation policy in line with other countries.
Also, allocate some degraded land either sole or on public-private partnership model for plantation, which will help improve environment and provide wood to paper mills.
Shortage of wood supply in the domestic market and high custom duty on the same has impacted the operation and profitability of paper producers based on wood logs/chips and bamboo.
Thus, reduction in custom duty on wood logs/chips and bamboo would be positive for domestic paper producers.
Image: Paper cups. Photograph: Kind courtesy, Wikimedia Commons
