‘GST likely to have overall positive impact on paper manufacturers’

Paper mills in the unorganised sector are faced with a number of problems, such as transition to the goods and services tax (GST) regime, disappearance of informal or cash trade, and lack of resources for installing green technology, says SAURABH BANGUR,

What is driving cheaper imports of paper into India? India is a fibre-deficit country. With raw materials accounting for around 50 per cent of the cost of production, the availability of fibre is the biggest constraint faced by the Indian paper industry. For example, the 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 price in ASEAN countries. This raises the cost of paper production in India by $100 a tonne, making the Indian paper industry non-competitive. How will the GST change business dynamics for paper mills? The 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 full refund of input tax credit to the manufacturers. Do you see the industry consolidating due to the GST, cheap imports, and demonetisation? The paper industry is a capitaland 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 But, players in the unorganised sector work on outdated technologies.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 players. The paper industry globally is witnessing a move towards consolidation. What are major challenges for the 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 (comprehensive economic partnership agreement) , the basic customs duty has been progressively reduced and will be 0 per cent with effect from January 2018. Imports of paper and paperboard into India from ASEAN in the past six years have grown at a CAGR (compound annual growth rate) of over 42 per cent. Imports from South Korea have grown at a CAGR of 60 per cent.