The Indian economy is surging, a giant middle class is becoming wealthier and the paper industry is investing. Will growth in tissue be next?
Perini Journal
India has been getting more and more attention in recent years as numerous experts and commentators predict that this immense country with a population of over 1.1 billion people is about to come of age. The second most populous country on Earth, and the world’s largest democracy, India’s modern history is most often considered to have begun in 1947 when it emerged from over 160 years of colonial rule under the British Empire.
However, a recent report on the surging Indian economy by New York-based financial analysts Goldman Sachs points out that “on the eve of the Industrial Revolution (around 1770), India was the second-largest economy in the world, contributing more than 20% of total world output. By the 1970s, after two centuries of relative economic stagnation, that share had fallen to 3%, the lowest in its recorded history. From a long-term perspective, the post-industrial economic decline of India is an historical deviation, driven to some extent by a lack of openness.”
After independence in 1947, India was fairly isolated and followed state-interventionist policies filled with complex regulations which severely restricted trade and economic freedom. The result was decades of stagnation and low growth. However, starting in 1991, when economic reforms were introduced, the Indian economy has moved to a higher growth plane and India has begun to play catch-up, becoming more integrated in the global economy. Growth since 1991 has been about 6% per annum and in the last 5 years it has been approaching 9%.
SERVICES BASED ON EDUCATION. As opposed to China, India’s growth is coming more from the service sector than the manufacturing industries. Most recently, the country has seen an IT boom, in part due to the liberalized economy and also to the incredible human resources and educational system in the country.
Many say that India’s competitive edge is its highly skilled manpower. There are over 330 universities comprising 16,000 colleges and 1,500 research institutions in India. Every year this network produces an incredible 9,000 PhDs, 125,000 engineering graduates, 450,000 post graduates from non-engineering colleges, and nearly two million other graduates.
This flow of educated youth has helped to fuel the IT boom in India as the supply of knowledge workers in the software industry has increased from 56,000 in 1990-91 to 650,000 in 2003 and will reach two million this year.
INDIAN PAPER INDUSTRY SET FOR GROWTH. Speaking at the Senior Management Symposium at Asian Paper 2008 held recently in Bangkok, Mr. R. R. Vederah, Managing Director of India’s largest paper producer, Ballapur Industries, told the 160 high-level delegates that the Indian Economy is on “the fulcrum of an increasing growth curve.”
There is no doubt, he said, that from 1991 onwards when the economic reforms were introduced, the Indian economy has benefited greatly. This was the second significant break in the Indian economy, the first one being in early 1980’s when the economy moved from what has been commonly described as “the Hindu Growth Rate” of around 3.5% to 5.5%. Based on the growth of close to 9% in the last five years, it is predicted by some experts that by 2025 India could emerge as a third pole in global economy after the USA and China.
Among the many positive indicators are 2007-08 exports estimated at USD 150 billion, and an 18% projected growth rate for exports. The country’s foreign exchange reserves are now USD 300 billion and the Rupee is steadily gaining strength against the US dollar. Perhaps most important of all, there are very promising consumer markets developing based on a middle class estimated at 350 million people that are aspiring for higher standards of living.
Recent reforms have included a rationalization of the tax structure – both direct and indirect; progressive reduction in peak rates of duties; Value Added Tax introduced from April, 2005 and the Rupee has been made fully convertible on trade accounts.
However, said Vederah, further reforms, especially with respect to labor flexibility and the financial sector, need to be pushed through rapidly if the high economic growth rate is to be sustained.
CHALLENGES FOR THE INDUSTRY. So what does this mean for the paper and board industry? The Indian Paper, Board and Newsprint industry is today very fragmented with more than 550 mills manufacturing 7.4 million tons of paper, board and newsprint.
In general, the Indian pulp and paper industry is experiencing the positive impact of a robust economic growth. Overall paper consumption in India has reached 8.5 million tons, making it an interesting market, poised for a major growth phase. Increasing demand for paper brings with it new challenges of economies of scale, efficient usage of resources, the need to develop and expand sustainable use of fiber, value chain management, etc. Thus there is a growing need to modernize the Indian mills, improve productivity and build new capacities.
PRINTING/WRITING AND PACKAGING GROWING MOST. Amongst all the segments, Printing & Writing and Containerboard (packaging grades) are expected to grow at a much higher rate compared to other segments. According to UK consultants Hawkins Wright, the total demand for these grades will grow from 8.4 million tons to 12.9 million tons in the period 2007-2012.
In 2007, the demand for uncoated woodfree papers was estimated at 2.9 million tons, out of which around 1.4 million tons is ‘Creamwove’, a lower grade of paper used in school text books.
Demand of UWF papers, excluding Creamwove, is expected to grow at a rate of 14% while Creamwove will grow at a much lower rate of 4% for the next 5 years.
In 2007, the demand for coated woodfree paper was estimated at 345,000 tons. Almost 90,000 tons per year of imports are coming from China while the balance comes from Europe and other South East Asia countries. Demand of CWF papers is expected to grow at a rate of 15% for the next 5 years.
The major growth drivers that are expected to take the Indian Paper Industry to new heights in the coming years are economic growth, increasing literacy rate and increased government spending on education, population growth, increased living standards, demand for high-quality magazines, increase in advertising and direct mailers, and an increase in multi-color printing and Printing Publishing Outsourcing.
TISSUE – JUST GETTING STARTED. The story is a bit different for tissue as it is hard to predict where the tissue industry in India is headed. Indications are clear that tissue production and consumption will rise rapidly in India, but just how rapidly is not easy to pinpoint.
Total tissue produced in 2007 amounted to an incredibly small 55,000 tons, while imports of jumbo rolls are estimated at 5,000 tons. On top of this, an estimated USD 40 million worth of converted tissue products were imported. These figures suggest that tissue demand accounted for less than 1% of total paper & board demand in India last year, compared with 8% in the USA and 6% in China.
To get a bit better picture of what is happening in the Indian tissue business, our consultant editor Hugh O’Brian recently spoke with several Indian tissue companies about their expansion plans. His reports are presented in the following pages.
India: Lots of potential, but when will it happen?
Perini Journal visited India recently to find out what is happening in the tissue market there. This resulted in the two articles which follow: one about Century Tissue and the other on Pudumjee. We were also hoping to visit Orient Paper Mills, which is installing a new Toscotec tissue machine, but due to busy schedules the company was not available.
We did however have contact with Mr. M. L. Pachisia, Managing Director, to learn a bit more about that project.
He told us that Orient is currently producing approximately 9,000 tons per year of tissue paper, both soft as well as hard MG grades. It is progressively increasing the proportion of soft tissue. As far as the new machine, said Paschia, “We are installing the new Toscotec machine, which can make 57 tons per day of high-quality tissue, and we expect to commission it towards the end of this calendar year. In addition, we are planning to set up converting facilities for napkins, toilet rolls and toweling.”
The company does not today have any converting operations, instead it sells jumbo rolls to other converters around the country. Orient estimates that the Indian market for tissue is today around 30,000 tons but is growing at almost 20% per year. Of this market, roughly 50% is soft tissue and 50% is hard MG tissue.
During the visit, we also spoke briefly with BILT (Ballarpur Industries Ltd.) which is presently only in the tissue market in a small way through its recently introduced brands, Etiquette and Spruce Up, which are mainly made through outside converters. It does not, at this time, make any soft tissue paper grades but is examining ways to enter the sector with a base paper machine.
Converting investments may also be coming. One factor that makes it easier to enter the market is the recent lifting of a ban, designed to protect small ‘cottage’ industries, for investments in converting equipment costing more that 1 crore (around USD 235,000).
Mr. R. R. Vederah, BILT’s Managing Director, said that the company is keen to enter the tissue sector but wants to get a clear picture of the supply and demand balance in the country before investing. As you will read in the following articles, it is evident that there are many, often diverging, opinions about the size of the Indian tissue market.