Rising inflation feared to crumple growth of paper industry in India

The paper industry in India has been in existence since ancient times, experiencing a paradigm change over the years. The existing paper mills in the country employ diverse technologies- from legacy to advanced methods. The mills use a variety of raw materials including wood/chemical pulp, agro residues and recycled fibre to produce paper and paper products.

While the demand for paper remained subdued in the developed world during 2009-12, the Indian paper and paper products sector saw a rapid growth. The sector saw consistent growth in consumption and increased production. This trend motivated the paper manufacturers in the country to implement capacity expansion and growth plans.

Following rapid consumption growth experienced in the past few years, the Indian paper industry experienced a lull in FY13; for that matter, most sectors of the Indian economy experienced a slowdown during this period. High inflation was a deterrent for consumption. Furthermore, rising raw material prices forced the manufacturers to increase the price of paper, temporarily forcing players in the industry to rethink their growth strategy. Some deferred their expansion plans, while others scaled down their operations.

However, the long term outlook for Indian paper sector is stable because of existing low per capita paper consumption, rising literacy rate and a young population. Government support and technology upgrades will further add to the growth of this sector.

Salient Points 

• India experienced a rapid growth in consumption of paper and paper products during the period 2009-12. During this period the consumption grew at a CAGR of 8.5% which  was much higher than the average global growth rate of less than 3%. However      demand experienced a slowdown during the first nine months of FY13.
• However, India only consumed 2% of the world’s paper production as of FY12, a low figure for a country which holds 15% of world’s population.
• The total paper and paper product exports from India grew at a CAGR of 12.4% in value terms during the period 2007-12. Paper exports accounted for 0.7% of the total exports of India as of 1HFY13.
• In 9MFY13, the paper and paper product index grew only by 0.7%, much below the growth it registered in last five years.

Chart: Y/Y growth in production index-Paper & Paper Products

Source: MOSPI

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