INDIA

Aptech Consultants (India) Pvt. Ltd

Political and economic scenario of the country - 2000

Over the past two years the National Democratic Alliance (NDA), with the Bharatiya Janata Party holding a key position in the alliance, has been leading the nation on the path of economic reforms which started in 1991. Mr Atal Bihari Vajpayee, an astute diplomat and politician who is occupying the Prime Minister's post, has been carrying out ably the difficult task of leading a coalition government of 17 parties.

One of the major events of this year was the visit of the United States President, Mr Bill Clinton. Mr Clinton was convinced of the potentials India possessed as the largest democratic nation in the world. He appreciated the great restraint India was showing in tackling the Kashmir issue. During his visit, he signed a number of agreements for economic cooperation. Since his visit, relations between India and the United States have greatly improved.

Relations with China are improving and those with the Russian Federation have always been friendly. Except for Pakistan, most of the neighbouring countries are on cordial terms.

During December 1999, the country had to face the Kargil conflict - a war-like situation imposed by Pakistan, to which India properly replied. The country had to face the devastating earthquake in Gujarat, which came as a big shock on the morning of 26 January 2001. As this coincided with the Republic Day holiday, most of the people were at home, causing a heavy death toll. The estimated figures of financial loss are between 25 000 crores to 30 000 crores and the number of human lives lost could be anywhere between 100 000 to 150 000. The time required to rebuild the State will not be less than a couple of years (Rs 1.0 crores = US$217 000).

However, the whole nation, the international community and Indians abroad have stood by the State of Gujarat and are working continuously to bring things back to normalcy.

Economic scenario

Despite the above difficulties, the Indian economy has stood the test of time. India's GDP now seems poised to grow at the rate of around 6 percent.

There has been a slowdown on some other counts. Industrial growth, which had bounced to 6.4 percent in 1999-2000, is expected to be lower at 5.7 percent during this fiscal year. Export growth has declined to around US$32 billion from around US$39 billion during the previous year.

The inflation rate has shot to a six-year high at 8.2 percent as at January 2001 due to the galloping increase in international oil prices. However, if the impact of oil prices is excluded, then the inflation rate for other products is around 4.4 percent.

In the stock market, BSE Sensex fell 13.5 percent from 5 001 in March 2000 to 4 327 in January 2001. The erosion of stock prices is due to the influence of overseas markets like NASDAQ.

The value of the Indian rupee as against the US dollar has increased from Rs 43.80 to around Rs 46.6 during the period March 2000 to January 2001.

On the positive side, India's foreign exchange reserves are at a high of US$38.36 billion as at end January 2001.

Performance of the paper industry - 2000

Present status and profitability

The pulp and paper industry is one of India's core sector industries. At present, there are about 400 paper mills in India, in the organized sector, with an installed capacity of 4 million tonnes per year. Out of these, over 130 mills which accounted for 1.3 million tonnes have been closed.

In addition to the above, over 1 million tonnes per year are produced in the unorganized small sector using wastepaper.

The operating capacity of the running units was in the range of 90 percent. Most of the mills in the forest-based sector had utilization beyond 95 percent.

Twenty-eight mills are forest-based, occupying 37 percent of total production capacity whereas 242 mills, i.e. 32 percent, are based on wastepaper and 130 units, i.e. 31 percent, are based on agroresidues.

Distribution of mills	No. of units	Capacity (tonnes/year)	Percentage of capacity
Below 50 000 tonnes/year	11	388	15.65
50 000 to 100 000 tonnes/year	5	357	14.40
100 000 to 200 000 tonnes/year	9	1 186	47.84
200 000 tonnes/year and above	2	838	33.80

Production, demand and supply scenario

The scenario of demand and supply position for the Indian paper industry given below is based on the following assumptions:

a) Demand for paper and board variety will move at the following rate:

- writing and printing - 7 percent per annum;
- industrial paper - 8 percent per annum;
- speciality paper - 10 percent per annum;
- newsprint - 10 percent per annum.

b) At the moment there are no big production capacities in the pipeline but there will be a marginal increase in the existing production capacity through modernization and higher capacity utilization. This is estimated at:

- writing and printing - 5 percent per annum;
- industrial paper - 6 percent per annum;
- speciality paper - 7 percent per annum;
- newsprint - 2 percent per annum.

c) In case of newsprint shortage, some of the capacities designed for writing/printing can switch over to the production of newsprint. This flexibility has not been taken into account.

d) Based on this, the gap in supply can normally be met either by imports or by extra domestic production.

e) Major imports will be newsprint and a minimal quantity of virgin kraft liner and speciality like coated paper and tissue paper.

f) There is hardly any scope for significant exports of any variety.

Likely scenario of demand and supply position

In addition to the above there is at least a capacity of over 1 million tonnes per year in the unorganized sector due to less discipline on tax and power bill payments, which comes into the market when the demand is strong.

Prices

(1 US$ = 46.50 Indian rupee)

There has been significant increase in prices of paper in December 2000 over December 1999. The price increase ranges between 16-45 percent. Duplex board prices are stable.

Environmental protection

The regulations for liquid and solid waste disposal are becoming stringent. Defaulters are being heavily punished and Honourable Courts are directing even closure of plants.

Industry can no longer take things lightly on environmental care and control. Air contamination prevention is also being considered.

There is a good scope for overseas consultants to collaborate in this field.

Outlook

The Finance Minister of the Government of India, in the budget for 2001 presented on 28 February 2001, announced a number of measures to boost the sagging economy.

These important measures to induce a growth-oriented economy will aim at:

- GDP growth rate of 7.5 percent;
- budget deficit to be reduced by 4.7 percent;
- reduced interest rates;
- rationalized tax structure;
- reduction in taxes and duty;
- improved infrastructure facilities;
- enhanced power generation capacity;
- reduced power transmission losses and more cost-effective power sector;
- increased foreign equity participation by 49 percent.

Industry and business circles have welcomed the following various proposals and are of the opinion that it is their responsibility to turn the economic cycle:

- budget impetus to education and the high-tech sector;
- disinvestment policy to sell public sector units;
- downsizing the government;
- Indian scientists and engineers in the field of information technology have attracted the world's attention and a number of incentives are announced to encourage this sector.

Impact on the paper industry

Consequently higher GDP growth demand for paper will increase. Industry will have to gear themselves into modernization, process upgrading, co-generation schemes, quality and environmental improvement.

Small-scale mills with economically inefficient and environmentally unacceptable operations will close down. Medium-size mills with niche markets and aggressive family-managed companies are likely to survive.

Looking to the competition, large mills are consolidating their position by acquiring other mills, which are likely to improve their operation because of the group support. Ballarpur Industries and J.K. Corporation are the main players with this approach.

The industry has shown significant improvement in profitability after the second quarter of 2000 and is expected to continue the same in 2001.

Industry expects better capacity utilization and improved bottom line.