By Sumit Khanna, Chief Executive of Beeta Tissues
Regional growth rates can already reach 20-25%, and as the new one-party government clears away restrictions on manufacturing and international players enter the market Sumit Khanna, chief executive of Beeta Tissues, New Delhi, assesses possible developments ahead.
After years of coalition politics, the parliamentary elections in 2014 gave a decisive mandate to a single party. There was now hope on the horizon as the compulsions of a coalition government would take a backseat and the reforms process which had been stalled for the last few years would finally get a new thrust. Under the dynamic leadership of Narender Modi, India is now poised for a leap forward.
The new government has come up with many projects to give the much needed impetus to the manufacturing sector. Indian manufacturing currently contributes 15-16% to GDP (2015) and gives employment to 12% (2014) of the country’s workforce.
Studies have estimated that every job created in manufacturing has a multiplier effect, creating two to three jobs in the services sector. In a country like India, where employment generation is one of the key policy issues, this makes this sector a critical one to achieve inclusiveness in growth.
India contributes 2.2% of the global manufacturing output which is on a par with developed economies of the world such as the UK and France. The government plans to increase the share of manufacturing in the country’s GDP to approximately 25% by 2022. This would create 100 million additional jobs in this sector alone. The government has focused on 25 different industries, tourism and hospitality being one of them. Taking the above into consideration India is bound to see a growth in its tissue requirement exponentially.
A uniform Goods and Services Tax which is now in its legislative stages would hopefully see the light of the day in 2017. The complexity of double taxation at the state and centre would be eliminated and growth is expected in the organised sector of manufacturing.
The consumption trend of tissue paper products in the metro cities is very different from the smaller cities and towns in India. Rural India mainly consumes MG poster (also called hard paper) in its paper napkins. Though this quality of paper is not at all absorbent to water, it is still extensively used here because of the cost factor. Tissues in India on the whole are still considered more a luxury item than a commodity. As a category the sales of paper napkins is maximum, and facial boxes the least.
With the country inviting Foreign Direct Investment and a conducive environment which is getting generated for business activities, there is a sharp increase in the number of offices. Consequently, consumption of hand towels in the AfH sector has also risen. Kimberly-Clark has introduced this category of tissues here and obviously has the first-mover advantage. Though organised retail still constitutes a very small portion of the retail sector, it is on the increase. Retail outlets are promoting their private brands and this is another growth sector for the industry.
A little less than a dozen new paper mills have emerged in the last three years, increasing the installed capacity to approximately 200,000 tonnes. The tissue paper industry in India is growing at an average of 20-25% annually depending on the region. At present consumption in the tissue paper industry is estimated at around 1.25lakh (a lakh – a unit in the Indian numbering system equal to one hundred thousand tonnes per year). Mainly recycled tissue paper is being produced by these new emerging paper mills, starting from 16gsm to 35gsm.
Amongst the new paper mills, Arjun pulp and paper mill is the only one to get into virgin grade paper with an installed capacity of 70tpd in south India (Tamil nadu). They are currently making napkin, toilet and towel grade paper. Nitin Jain, chief marketing manager of Arjun pulp and paper, says: “With organised players like Asia Pulp & Paper and SCA entering the Indian tissue market and investing big in the retail segment with advertisement of their products, the market shall definitely improve.”
Tissue paper convertors are also shifting to semi-automatic and fully automatic packaging machines to meet the envisaged surge in demand. The penetration of international brands like Paseo, Tempo, etc, has forced Indian convertors to revamp their packaging.
There is clearly a tough fight ahead for local tissue converters with the internationals. This is not to say that they will die; they won’t, at least not the big ones. But they are clearly under attack. The challenge has been laid down.
Sumit Khanna is the chief executive of Beeta Tissues based in New Delhi, India.