Impact of Budget on the Indian Paper Industry

8/6/2019 Impact of Budget on the Indian Paper Industry

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Paper & Paper products

Palak kumar - 09927862 Varun C 09927836

Indian Paper Industry

The Indian Paper Industry accounts for more than 2% of the worlds production of paper and

paperboard. Since October 2008, the demand scenario was sluggish due to the weak economic

situation and this scenario persisted till the end of the calendar year 2009. The weak demand,

over supply due to capacity addition and fear of imports from China and Indonesia kept prices

under pressure. However, since April 2010, the demand cycle reversed primarily driven by

strong demand and closure of capacities in various parts of the world. The growth in the paper

industry is in tandem with the growth in GDP - Indian paper industry has grown on an average

6-7% over the last few years. Paper production is expected to grow by 8% in 2011-12 and by7.3% in 2012-13 mainly led by healthy growth in demand from the academic, corporate,

industrial and retail segments. At present, about 60.8 per cent of the total production is based

on non-wood raw material (waste paper) and 39.2 per cent on wood pulp.

Government has completely de-licensed it with effect from17th July, 1997.

Foreign equity participation up to 100% receives automatic approval by Reserve Bank of

India.

About 515 units engaged in the manufacture of paper and paperboards.

The country is almost self-sufficient in manufacture of most varieties of paper and

paperboards.

To meet part of its raw material needs the industry has to rely on imported wood pulp

and waste paper.

Performance constrained due to high cost of production

high cost of raw materials, power cost and concentration of mills in one particular area.

The capacity utilization of the industry is low at 60%.

Cobb-Douglas Production Function

Q = A La

Kb

Ln Q = Ln A + a Ln L + b Ln K


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Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

Sales Turnover 7,544.13 8,141.58 6,996.58 9,418.47 8,493.10 7,736.47 7,092.76 7,552.29 7,279.69 7,047.

Ln Q Ln Output 8.92853 9.00474 8.85318 9.15043 9.04701 8.9537 8.86683 8.92961 8.89284 8.8604

Employee Cost 642.22 605.58 546.98 731.98 667.15 647.88 623.81 612.23 606.49 599.72

Ln L Ln Labour 6.46493 6.40619 6.30441 6.59575 6.50301 6.47371 6.43585 6.41711 6.40769 6.3964

Gross Block 11458.3 10638.2 9549.54 11728.9 10869.6 9533.98 9942.53 9807.01 9256.26 8909.8

Ln K Ln Capital 9.34647 9.27221 9.16425 9.36981 9.29372 9.16262 9.20458 9.19085 9.13306 9.0949

a = 0.72438

b = 0.37242

1.0968

As a + b is greater than 1, this industry has IRS

Input Substitution

Ln Q Ln L Ln K

8.92853 6.46493 9.34647

9.00474 6.40619 9.27221

8.85318 6.30441 9.16425

9.15043 6.59575 9.36981

9.04701 6.50301 9.29372

8.9537 6.47371 9.16262

8.86683 6.43585 9.20458

8.92961 6.41711 9.19085

8.89284 6.40769 9.13306

8.86048 6.39646 9.09491

Year 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

Sales Turnover 7544.13 8141.58 6996.58 9418.47 8493.1 7736.47 7092.76 7552.29 7279.69 7047.87

Employee Cost 642.22 605.58 546.98 731.98 667.15 647.88 623.81 612.23 606.49 599.72

Gross Block 11458.26 10638.23 9549.54 11728.94 10869.59 9533.98 9942.53 9807.01 9256.26 8909.87


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Average labour, L = 628.404

Average Capital, K = 10169.421

Values from regression output

= 0.724382

= 0.372422

A = 0.848403

d(MPL)/dK = d(MPK)/dl = AL-1K

Final value = 0.000118

They are supporting factors are the value is positive.

Indian paper Industry Concentration

Company Name Sales Market Share

Paper 8708.68

AP Paper 649.08 7.45%

Ballarpur Inds. 1,061.72 12.19%

Emami Paper 397.89 4.57%

Hind.Newsprint 298.61 3.43%

Hind.Paper Corp 743.22 8.53%

JK Paper 1,253.15 14.39%

Mysore Paper 330.42 3.79%

Pudumjee Industr 70.27 0.81%

Pudumjee Pulp 218 2.50%

Rama Newsprint 308.5 3.54%

Ruby Macons 146.46 1.68%

Satia Indust. 210.46 2.42%


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Seshasayee Paper 509.26 5.85%

Shreyans Inds. 238.21 2.74%

Sirpur Paper 335.49 3.85%

Star Paper Mills 251.64 2.89%

T N Newsprint 1,062.39 12.20%

West Coast Paper 623.91 7.16%

http://www.capitaline.com

Union Budget 2011

Paper Industry

y Customs Duty on waste paper reduced from 5.2% to 2.6%y Excise duty of 1% imposed on wood pulp

y Increase in excise duty from 4.1% to 5.2% on paper

Effect on marginal cost:

y Introduction of 1% excise duty on wood pulp is likely to increase the raw material costs

for few firms, however as the majority of firms are dependent on waste paper as a

source of raw material, the decrease in customs duty would decrease their marginal

cost.

Effect on Industry Concentration:

y Decrease in marginal cost however is negated by the increase in excise duty from 4.1%

to 5.2%. Hence the profitability as such would not change and therefore concentration

of the industry would more or less remain same.

Impact on the industry:

The budget 2011-12 has a neutral effect on the paper industry. The custom duty on the raw

material (wood pulp/waste paper) has been reduced by 260 basis points and the excise duty on

finished goods, in most cases (writing & printing paper) has been increased by 100 basis points.

This will have an offsetting effect. However, companies manufacturing cartons, boxes and

corrugated boxes will have some positive effect since they would benefit from the 50%

reduction in customs duty while excise duty has remained at the same levels.


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Impact of Budget on the Indian Paper Industry