August 9, 2012
India is quickly becoming an attractive new market for the American pulp and paper industry, according to “Turning the page on India’s paper industry: A new chapter in investment potential and growth,” a new report from Deloitte. Growth in the Indian market is tied to a significant increase in demand, fueled by a burgeoning middle class and a growing workforce waiting to be added to the worldwide employment rolls.
According to the report, the U.S.-based International Paper (IP) acquisition of a 53.5 percent stake in Andhra Pradesh Paper Mills (APPM) in March 2011 stirred widespread interest in the Indian market. Prior to that, the paper industry in India did not appear to be on the radar of many multinational companies.
“India’s paper industry is expected to grow at six to seven percent year over year, with the packaging industry poised to grow at 22 to 25 percent annually,” said John Dixon, principal, Deloitte Consulting LLP. “India has 15 percent of the world’s population, but consumes less than two percent of the world’s paper. Meeting the growing demand will likely require a correspondingly significant investment in both new machines and upgrading of existing facilities.”
The report analyzes the challenges to investing in India, which include inadequate investment in infrastructure, limitations on raw materials, lack of a coordinated and updated manufacturing policy, outdated labor policies, and lack of a broad power supply that has created a situation where only about 60 percent of paper-making capacity is being used.
Companies that are considering entrance into the Indian market should do so strategically and should consider location. For example, states such as Andhra Pradesh, Maharashtra, and Gujarat, may be preferred locations for consideration because they may be investor friendly and closer to raw materials.
“Paperboard and printing, along with specialty papers, are likely the segments with greater ease of entry and long-term growth,” explained Dixon. “Acquisition of or a controlling stake in a joint venture with an existing player with sizable assets can offer an attractive option for entry,” added Dixon. “India also allows 100 percent foreign direct investment (FDI) in this sector, making it an attractive landscape for foreign investment – one of the keys to growing the paper industry.”