Expansion spree won't match paper demand

Inspite, of Rs 8,000 crore plus investment announced by the domestic paper industry in expanding production capacity by about 14 lakh tonne over the next 4-5 years, the country is likely to face a paper shortage by 2010, and the demand could well outstrip production.

Currently, the total domestic consumption demand of paper is about 72 lakh tonne, while the production is only 66 lakh tonne. As country is importing about 6 lakh tonne of newsprint.

According to industry estimates, the domestic paper consumption is set to touch 100 lakh tonne by 2010. As things stand, there could be a sizeable paper shortage in coming years and our dependence on imports could increase.

"The domestic installed capacity is 80 lakh tonne, out of which 72 lakh tonne is operational. Even though the paper consumption is expected to touch 100 lakh tonne by 2010, more capacities are supposed to be added and the difference between production and demand would only be marginal," said R R Vederah, managing director of Bilt and president of the Indian Paper Manufacturers Association.
  

ON A ROLL
Company	Capacity addition (in lakh tonne)	Investment (in Rs cr)
ITC	2	2500
Bilt	3	1550
Whitefield	2	1200
Hindustan Newsprint	1.8	720
Amrit	1.27	625
Century	75,000	385
Sirpur	57,000	350
Rama	1.4 lakh	350
Seshasayee	30,000	350
JK	60,000	235
Orient	20,000	55
Source:Companies and Fitch Ratings

 
Apart from the rising demand, the increasing paper price is also luring players to add capacities. In 2006 alone, the companies have hiked paper price by about Rs 2000 per tonne.

With the country's gross domestic product (GDP) growing at about 8 per cent, paper industry is also seeing a similar growth.

The population growth will also be a driving factor. Due to increasing government spending on education, the future demand is expected to be strong.

The 2006-07, union budget outlay for education stood at Rs 20,745 crore, up about 37 per cent from the previous year's Rs 15,044 crore.

"The per capita paper consumption in the country is only 7 kg and every one kg increase in consumption will add 1 million tonne in the total demand," said B Hariharan (group finance director) of Bilt.

"There is an apprehension that the demand for paper would decline with the growing use of internet. However, the use of internet has complemented the growth of industry. We take a print out for each and every mail," adds Hariharan.

"People are moving up the education ladder, new newspapers are being launched while the existing ones are launching more editions, thereby the consumption of newsprint paper are increasing. The industrial paper would see a growth in demand owing to the expanding manufacturing activity," said V Kumaraswamy, vice president (finance) of JK Paper.

The emerging phenomenon of printing process outsourcing (PPO) whereas lot of printing and publishing activity is being outsourced to India, will be a major growth driver in the coming years, said Hariharan.