Political and Economic Scenario
This year, India celebrates the Golden Jubilee Year
of Indian Independence, a proud moment of its history. In spite
of its vast size, ever increasing population, diverse religious
belief's, different languages, infrastructure difficulties, substantial
number of people living below the poverty line, India has withstood
the taste of time by preserving democracy in the country.
During 1996, the Indian National Congress, the largest
and oldest political party in the country, was in power until
June 1996, when it completed its five-year term of office. However,
in spite of fairly good political and economic performance, the
party did not reach the majority to form the new government. Although
the Bharatiya Janata Party (BJP) emerged as the single largest
party, neither managed to reach the majority to form their own
government. The President of India gave this party the opportunity
to establish a majority, but the party failed to do so, surviving
barely for thirteen days. The second largest majority, Congress
party, instead of risking to prove majority with the support of
other parties, preferred to support a third force from outside.
Thus, in June 1996, the third force, a conglomeration
of thirteen parties with various faith principles and ideologies
was formed. This party, named United Front, came into power with
the external support of the Congress party. Apparently, for the
last eight months, they have continued with the basic policies
set out by the previous government. This indicates that the country
is not deviating substantially from the earlier chartered path
of liberalization set by the previous government.
As regards liberalization and free trade, it appears
that this has become a universally-accepted policy from which
nobody will turn back, but rather would like to move forward only.
It is now to be seen whether a polarization takes place to form
two stronger groups of political ideologies.
The current outlook for the Indian economy looks
good. The experts expect the GDP growth rate to be more than 6.7 percent
as against 6 percent in the previous year. The foreign currency
reserves have gone up to US$ 19.5 billion as against
US$ 16.3 billion in the previous year. The current account
deficit is expected to be lower than 2.0 percent of GDP as
against 1.5 percent in the previous year. The inflation rate
has gone up to 7.48 percent as against 5 percent in
the previous year.
Indian Paper Industry
As compared to 1995's production - 2.7 million
tons - a growth of 5 percent can be reported for 1996. In
this year the government made radical changes in the import tariffs
by reducing the duty on paper. A few years ago newsprint was imported
at a zero percent duty, but the accompanying rider specified
that only actual users would be permitted to import newsprint,
under the condition that for each ton of newsprint imported the
user had to consume at least two tons of Indian newsprint. Further,
the ministry slashed down customs duty on other papers from 60
to 20 percent and newsprint was allowed to be imported under
open general license (OGL) at zero percent duty.
As a result, under the garb of newsprint, traders
started importing writing, printing and coated varieties of paper
in huge quantities at zero percent duty. Due to prevailing
international trade, the imported material was much
cheaper as compared to the Indian material and also availability
was an additional benefit of credit which ran into months at a
significant low rate of interest. Indian manufacturers, on the
other hand, could extend their credit just up to one month. Thus
prices took a downward trend and inventories started piling up.
The current newsprint demand is approximately 630 000
tons. The domestic production during 1995-96 was approximately
412 000 tons (i.e., 65 percent of the demand), thus
leaving a gap of 218 000 tons to be filled up by imports.
However, due to cheaper imports of imported newsprint, the volume
of imports have gone up to some 345 000 tons in the same
The producer performance for the first half of 1996-97
are way down as compared to the same period in the previous year.
Stocks have piled up heavily. Tamil Nadu Newsprint Ltd. (TNPL),
the Indian newsprint giant, posted its bottom line as almost half
for the first half of the current fiscal year, as compared to
the first half in the previous year. As a result, most of the
machines dedicated to producing newsprint in the country have
ceased their operations or conveniently gone into an extended
repair-and-modernization period. TNPL has also reportedly not
made any newsprint for the last three months and still nurses
huge stocks, Aurangabad Paper has for the first time in its history
been closed for the last quarter. Another giant, Hindustan Newsprint
and Papers Ltd. (HNPL) reduced its output from 9 000 to 5 000
tons per month and still carries 10 000 tons in stocks. However,
the demand growth for paper and paperboard is stable. The above
demand is expected to grow at a rate of 7.8 percent. The
growth rate for the different varieties of paper and paperboard
is expected to be as below:
Cultural Paper 6.7 percent
Industrial paper 8.2 percent
Speciality paper 7.0 percent
After understanding the problems, the Government
of India has recently imposed 10 percent custom duty on newsprint
and has excluded newsprint from the OGL list. A few more steps
are being considered during this year's budget proposal, due on
28 February 1997.
In the wake of international competition and reduced
tariffs on imported paper, most of the companies are reconsidering
announced expansion plans and slowing down their implementation
until they arrive at the economic scale of operation, appropriate
technology and indication of market trends.
The ongoing schemes will be completed. Four to five
major large-sized production units are expected to come into the
market viz: Rama Newsprint and Papers Ltd. (RNPL) 150 000
tpy (newsprint and writing/printing - by using waste paper de-inking
technology); Sinar Mas 115 000 tpy (writing/printing and
coated paper - based on 100 percent imported pulp from Indonesia);
ITC Bhadrachalam 120 000 tpy (coated board - based on waste
paper and own pulp); Serveall 70 000 tpy (coated board -
based on waste paper and purchased pulp); Sterlite 125 000
tpy (writing/printing, coated paper and newsprint - based on imported
pulp and waste paper), besides marginal expansions planned in
the existing units. Most of these units are aiming at exports
for part of their production. However, some temporary excess production
seems unavoidable in the industry for some period which might
take the toll of weaker units.
Indian paper industry will continue to face the
following major issues:
The industry cannot have its own land for captive
plantation and has to make its own arrangements on scanty areas.
A few mills have taken progressive steps in social forestry, but
this arrangement is not adequate for the capacity they want to
grow. Another option is agricultural residues where bagasse is
the only source and this has to have some linkage with sugar mills.
There has been a tendency to use more wastepaper (mainly imported).
Mills will have to rely on large scale imports of wood pulp.
With rapid industrialization, demand for power is
going up at a faster rate than the growth of supply. Paper industry
will have to generate their own power to avoid interruptions in
production due to power cuts.
The old method to treat environmental issues is
no longer effective, therefore, overall strategy needs to be adopted
to select proper process and equipment, and maximum segregation
of effluents which should be treated selectively. The environment
regulations and the enforcing agencies are becoming stricter every
day. Also, the High Court and the Supreme Court insist on better
environment practices, often passing strict orders. Thus, it has
become necessary for the paper industry to improve its environment
In order to make the size of operations internationally
competitive, investments are becoming very high. The industry
will have to take recourse to international funds and overseas
joint venture partnerships.
The IMF report on India's economy is encouraging.
Joint ventures with overseas partners are being put into practice.
There has been a continuous improvement in the flow of foreign
investment. In a survey conducted by a Japanese company, it was
reported that India stood second on the list of countries preferred
by Japanese companies for making new investments.
In a recent interview, the Finance Minister of India,
Mr. P. Chidambaram, stated that the economy will become stronger
as more sectors are opened to foreign competition. The large scale
of capital goods in the first three years after the reform had
caused apprehension that the domestic industry would suffer. Instead,
the opening of the sector has resulted in its faster growth and
has enhanced its competitiveness. The Minister believes that the
same would be true for the still unopened and unreformed sectors.