ORIGIN AND GROWTH OF PAPER INDUSTRY

ORIGIN AND GROWTH OF PAPER INDUSTRY

CHAPTER II ORIGIN AND GROWTH OF PAPER INDUSTRY 2.1. Introduction Paper industry is one of the key industries of a country and it supplies various types of paper and paperboards to a large number of users, such as educational institutions, companies, packaging, wrapping, printing, newspapers, magazines, etc. Further, paper provides the means of documenting, storing and disseminating information. It is used to pack transport and display products ranging from bread, tea, soap, butter, salt, pulses and drinks, furniture, fertilizers, cement, etc. All over the world, paper is considered a pre-requisite of modern day's existence and civilization. The growth of civilized society, globalization, industrial revolution, increasing complexities of commerce, need for written communication, information explosion, and increased awareness of education are some of the key factors escalating the demand for paper day by day. The importance of paper and paper products in modern life is obvious to everyone. It is difficult to imagine modern life without paper. Being one of the basic necessities of the present day society, its scarcity could jeopardize the economic and intellectual advancement of a country. Despite the electronic revolution leading to more and more automation of operations and computerization, the much talked about "paperless office" has remained a distinct dream even in the developed countries. But the vast

36 use of photocopiers, telex machines, and tele-faxes increases the reams of paper. 2.2. Importance of Paper Industry Indian paper industry is the 15 th largest paper industry in the world. The government regards the paper industry as one of the 35 high priority industries of the country. Further, "paper and paper products" is a core sector industry of the Industrial Development and Regulation Act, 1951. Paper is also one of the items covered by the Essential Commodities Act, 1955.1 The Research Section of the National Productivity pointed out the importance of the paper industry by stating that paper industry's performance was crucial to the economy to the extent of the growth of service sector. The predominant roles of paper industry continued until recently when the revolution in microelectronics and photo chemicals posed challenges to this industry.2 The consumption of paper is one of the indicators of the economic development of a country. The paper consumption helps the cultural and educational development of the people. Alka Subramanian. 1987. Small is not Beautiful: A Study of Paper Industry, Economic and Political Weekly, August, Vol. XXII, No.35, p.87. 2 Research Section of the National Productivity Council. 1989. Productivity Norms for Agro Paper Mills., Productivity, January-March, Vol.29, No.4, p.467.

37 Moreover, with more than half of the world population in Asia, the potential growth in paper consumption is enormous.3 India is the fastest growing market for paper globally and it presents an exciting scenario; paper consumption is poised for a big leap forward in sync with the economic growth and is estimated to touch 13.95 million tonnes by 2015-16. In fact, the per capita consumption of paper in the developed countries is nearly 100 times more than that of the developing countries.4 As per industry guesstimates, the overall paper consumption -, including newsprint has now touched 8.86 million tonnes and the per capita consumption is pegged at 8.3 kg. The Indian paper industry accounts for about 1.6 per cent of the world's production of paper and paperboard. The estimated turnover of the industry is Rs 25,000 crore approximately and its contribution to the exchequer is around Rs. 2918 crore. The industry provides employment to more than 0.12 million people directly and 0.34 million people indirectly. 2.3. Global Trends There were nearly 8,879 paper mills all over the world in the year 1997-98. The total installed capacity during the above period of these mills was about 329 million tonnes. The production was 282 million tonnes for 3 Seetal S.Mehta, Rakshesh J.Oza. 1999. Indian Paper Industry Looking to a Sunbeam?, SAKET Industrial Digest, August, Vol.5, No. 8, p.11. 4 Ibid. p.9.

38 varieties of paper with an overall capacity utilization as high as 86 per cent. China occupies the first place with nearly 54 per cent in the case of number of mills followed, by USA, Japan and India in the world. But the USA stands at the top of the paper producing countries at a staggering level of nearly 81.8 million tonnes during the period 1997-98 and was higher than the production for the whole of Europe. Japan is in the second position in production with 30 million tonnes of paper. Japan is not endowed with sufficient forestlands to provide the raw materials for making paper. China is ranked in the third position with a production level of 26 million tonnes. The utilization capacity rate is higher at 93 per cent in Japan and Germany. The utilization capacity of Indian paper industry is meager at 53 per cent when compared to the Asian and the World average of 86 per cent. In India, the average per capita consumption of paper is a low 5 kilogram, against the Asian average of 27 kilogram and the world average of 54 kilogram5. The per capita consumption of paper is highest in USA at 319 kilogram followed by Japan at 245.2 kilogram, Canada 227.4 kilogram, United Kingdom 198 kilogram, Germany 188.9 kilogram and 24.7 kilogram in China. Until 1980s China and India were almost similar in the terms of per capita consumption of paper. China opened its economy in mid 1980s and attained a significant growth rate in 5 Shailen Kumar Sadhu. 2004. Indian Paper Industry: An Overview, Facts for You, June, p.13.

39 paper consumption by increasing tremendous production in order to meet the demand. Among the world's paper consuming countries, India's position gives a depressed and terrible picture. China's per capita consumption of 24.7 kilogram achieved during 1997-98 can be attributed to the reorientation of its economic policies. India had initiated economic reorientation in 1991 and the phenomenal growth in per capita consumption witnessed in China is expected to be repeated in India also in the coming years.6 2.4. Historical Review of Indian Paper Industry The history of paper making goes back to the period between 2000 BC and 2500 BC, when the manufacture of writing paper began with the use of all types of reed called 'papyrus' growing along the bank of the river Nile in Egypt. The word paper therefore was derived from papyrus 'the name of the reed'. The art of paper making was developed in China in the year 105 AD by Is ai Lun, a chemist.' The art of papermaking reached India through the Arabs; they learnt the technique of paper-making from the Chinese captives at Samarkand and diffused it westward. After the paper technology reached the Arabs, the Arabians improved the technique and supplemented linen with flax and other vegetable fibres. With the conquest 6 Prabharkara Sharama. 2000. Marketing Projection of Paper Industry, Indian Journal of Marketing, November-December, Vol.XXX, No.11 & 12, pp.17-18. 7 Khetan. V.N. 1979. Shortage of Raw Material, Commerce, November, Vol.139, No.3569, p.931

40 of Sind by the Arabs, Khurasani paper was first introduced in India early in the eighth century AD, and it continued to be imported for several centuries. Prior to this, the Aryans settled in North India who used tamrapatra, talapatra, lohapatra, etc. as writing materials. Later on, they used metals such as lead, copper and bronze for the purpose of written communication. Evidence shows that before the invention of machine-made paper, a sizeable number of hand-made paper industry flourished in India. Paper was considered for common use all over India at the closure of Akbar's regime. Muslims were supposed to have introduced the art of paper making in India in the 13 th century. India, being the centre of learning, it was natural that the paper industry flourished rapidly here. With the establishment of the British Rule, and more particularly after the Industrial Revolution in Britain, the entry of machine-made British paper came into India on a large scale and the downfall of handmade paper industry in India was complete.8 The first paper mill in India was set up at Sreerampur, West Bengal, in the year 1812 by William Cary. It was based on grasses and jute as raw material. He introduced the steam engine in 1820 and added first four-driner type machine of 1832 to the existing paper mill. But the unit installed at Sreerampur was a failure. The production of machine-made paper, 8 Ahuja, S.P. 1975. Paper Industry in India: Report and Directory, The Institute of Economic and Market Research, New Delhi, p.53.

41 following the failure of the Sreerampur experiment, commenced in 1870, with the establishment of a paper mill in Hooghly. Soon after, a number of units were setup.9 The period 1894 to 1925 was a tough one for this industry as it had to struggle for its survival in the heavy competition of cheap imported paper made from wood pulp. At the beginning of the 20th century, India's production of paper stood as 19,000 tonnes. By the year 1913, as many as seven mills were manufacturing 24,300 to 25,000 tonnes of paper per annum. The raw materials in common use were sabi grass, rags, jute and imported wood pulp. A paper mill which was designed entirely to work on bamboo was started in 1918 at Naihati, by the name of India Paper Pulp Company. In 1925, the industry gained its first fillip in the form of tariff protection. The production of paper, which was more or less stagnant around 25,000 tonnes per annum during 1900-1925, recorded an increase of double the quantity within a decade. The production in the year 1935 was 50,000 tonnes.10 The production of paper for the year 2000-01 was 39.50 lakh tonnes and it was raised to 58.90 lakh tonnes in the year 2005-06.11 9 Sivaram Reddy.0 and Mohan Reddy. P. 1989. Indian Paper Industry: Problems and Prospects, Indian Journal Marketing, February-March, Vol.XIX, No. 6 &7, p.27. 10 Commerce Research Bureau.1987. Paper Industry-Burden of Sick Units, December, Vol.135, No.3995, p.6. 1 Satyasundaram, I. 2009. Paper Demand Outstrips Supply, Facts for You, April p. 23.

42 During the period 1911 to 1946, the Government had interfaced a number of times in the working of paper industry through price, production and distribution controls. The Second World War had given sufficient impetus to the development of paper industry in India. Firstly, as a result of cessation of imports, indigenous production level increased considerably. Secondly, the industry attracted sizeable investment due to the post-war economic boom. In 1951, there were 17 paper mills, and in 2004, there were about 525 units engaged in the manufacture of paper and paperboards and newsprint in India12. Indian paper industry has been de-licensed under the Industries (Development & Regulation) Act, 1951 since 171h July, 1997. The interested entrepreneurs are now required to file an Industrial Entrepreneurs' Memorandum with the Secretariat for Industrial Assistance for setting up a new paper unit or substantial expansion of the existing unit in permissible locations. Foreign Direct Investment up to 100% is allowed on automatic route on all activities except those requiring industrial licenses where prior governmental approval is required. 2.5. Structure of Paper Industry in India The paper industry can be classified according to the size of the mill, the type of raw-materials used and the type of paper produced. The pulp and paper industries in India have been categorized into large-scale and small- 12 Shailen Kumar Sadhu. 2004. Indian Paper Industry: An Overview, Facts for You, June, pp.13-16.

43 scale. Those paper industries, which have capacity above 24,000 tonnes per annum, are designated as large-scale paper industries. In 1985-86, the Ministry of Industry, Department of Industrial Development defined a small mill based on unconventional raw-materials and installed capacity for the manufacture of paper and paperboard not exceeding 24,000 tonnes per annum." The small scale units occupied more than 50 per cent of the aggregate installed capacity and production. Among the 254 small units, the Northern zone had the highest number of small scale units. Though the Northern zone dominated in terms of the number of units, the Western zone topped in terms of installed capacity and production which figured a little over 40 per cent of the total production in the small scale sector. The Northern, the Southern and the Eastern zones had secured second, third and fourth positions respectively in terms of installed capacity and production in small scale sector in the year 1986.'4 India had 406 paper units in 1997-98; out of these, 15 units were large scale, 340 were small-scale and the remaining 51 belonged to the medium scale sector.15 Large paper mills contributed 40 per cent of total paper and board production:6 13 Alka Subramanian, op.cit. p.87. 14 Commerce Research Bureau, op.cit. pp.5-6. 15 Prabhakara Sharma, op.cit. pp.18-19. 16 Shailen Kumar Sadhu, op.cit. p.14.

44 The mills use a variety of raw materials viz, wood, bamboo, recycled fibre, bagasse, wheat straw, rice husk, etc. Approximately 35% are based on chemical pulp, 44% on recycled fibre and 21% on agro-residues. On the basis of raw-materials, the industry can be categorized as wood-based, agrobased and wastepaper-based. The wood based is also called forest-based. This unit uses wood pulp or bamboo as the raw material. The agro-based unit uses bagasse, rice straw, wheat straw, grasses, jute and mesta stalks, etc. as raw materials. The waste paper segment uses waste paper, secondary fibres, etc. In 2004, India had 525 paper units. Of this, wood-based units constituted 32, the agro-based constituted of 110 units and the wastepaperbased were the remaining 383 units17. On the production side, the wood based mills totaled about 40 per cent of the total production, while the waste paper based mills and agro-residual based mills contributed 28 per cent and 32 per cent respectively in the year 2004. On the basis of the type of paper produced, paper industry is classified into two segments, namely paper and paperboard, and newsprint. Both paper and paperboard are manufactured by using chemical pulp, whereas newsprint is different from the paper and paperboard as it contains 60 to 70 per cent of mechanical wood pulp. The Indian paper industry manufactures different varieties of paper and paperboard ranging from cigarette tissues, coated boards, art paper, bond paper, cheque paper, tele 17 Shailen Kumar Sadhu, op.cit. p.14.

45 printer paper, tracking paper and many more. There can also be different quality levels owing to marginal variations in the input compositions. The growth of the paper and paperboard industry gathered its momentum after the independence. The number of paper mills increased from 17 in 1950-51 to 525 in 2004 and the production increased from 116 thousand tonnes to 5550 thousand tonnes during the same period. In 2004, there were about 525 paper mills with an annual installed capacity of 64.10 lakh tonnes and the capacity utilization was about 86.50 per cent." Indian newsprint industry has a chequered history. The first newsprint mill in India was set up in 1947 by the National Newsprint and Paper Mills Limited, Nepanagar, production at the plant in 1955 with an installed capacity of 75,000 tonnes per annum. Till 1981-82, it was the only newsprint factory in India with 77 per cent capacity utilization, and produced 58 thousand tonnes. In 1982-83 two more newsprint plants were started, namely Mysore Paper Mills Limited and Hindustan Newsprint Mills Limited with the installed capacity of each 75,000 tonnes per annum. Later on, Tamil Nadu Newsprint and Paper Limited, with an annual installed capacity of 50,000 tonnes came into being in 1985-86. It is the first newsprint factory in the world to use more than 80 per cent bagasse in the furnishing and without any fiber support. The Rayalseema Paper Mill was 18 Ibid., p.14.

46 the next to follow in 1987-88 with an installed capacity of around 50,000 tonnes. In 1991, the government selectively allowed small private entities to manufacture newsprint based on waste paper. In 1997, there were 26 mills producing newsprint, four in the central public sector, two in the state sector and 20 in the private sector.19 The installed capacity of the newsprint mills increased from 6 lakh tonnes in 1994-95 to 10.45 lakh tonnes in 2002-03 and the production increased from 4.02 lakh tonnes to 5.40 lakh tonnes during the same period.20 2.6. Paper Industry in Tamil Nadu In Tamilnadu, there are a number of small and medium sized paper industries producing less quantity of paper and paper products. Among them the important few mills are as follows: 1. Sun Paper Mill Limited is located at Tirunelveli, producing 80 tonnes of paper per day only for supplying newsprint to its subsidiary concern (Daily Thanthi). 2. Sri Venkatesa Paper Mills Limited is located at Udumalpet, producing 50 tonnes of paper per day. 19 Madhu Sehgal. 1997. Paper Industry, PNB Monthly Review, June 1, pp.337-339 20 Shailen Kumar Sadhu, op.cit. p.15.

47 3. The ITC Limited is located at Thekkampatti Village, near Mettupalayam, in Coimbatore District of Tamil Nadu. 4. Nizam Paper & Board Mills Limited is located at Pudukottai, producing 25 tonnes of paper per day. Besides, there are two large scale paper mills in Tamil Nadu, namely, the Tamil Nadu Newsprint and Papers Limited and Seshasayee Paper and Boards Limited. 2.7. Profile of the Study Units The brief description of the select paper mills is given below. 2.7.1. Tamil Nadu Newsprint and Papers Limited The Government of Tamil Nadu at Kagithapuram, Karur District, established Tamil Nadu Newsprint and Papers Limited (TNPL) in 1979. TNPL is one of the major players in the domestic paper industry. The company has business interests in manufacturing newsprint, printing and writing paper. The Tamil Nadu Government is a major stakeholder in the company. In this pursuit for excellence TNPL has stood out with a distinct identity. The company makes paper mainly out of renewable, non-wood based raw material, bagasse. As a result, TNPL saves thousands of acres of forestland from denudation. Through decades, wood has been the main raw material for paper. But TNPL, responding to the Government policy to

48 encourage non-wood based paper, boldly decided to manufacture paper mainly from bagasse. TNPL is the manufacturer of newsprint from bagasse in the whole world. TNPL produces about 1,80,000 TPA of newsprint and printing and writing paper. The paper machines have the flexibility to produce both newsprint and printing and writing papers. Together they are capable of production up to 650 tonnes per day. At TNPL nearly 75 percentage of power is from in-house power generation. TNPL's 15 MW wind farm having 60 generators is one of the largest in Asia. TNPL has been bestowed the prestigious ISO 9001 certification by N/s. TUV Cert, Netherlands, complementing its design excellence and system compliance. They are producing compact and cost effective papers with attractive package. And also with the high quality bagasse base, TNPL paper is a perfect match of sheet fed papers. 2.7.2. Seshasayee Paper and Boards Limited Seshasayee Paper and Boards Limited, the flagship company belonging to 'ESVIN GROUP', operates on integrated pulp, paper and paperboard mill located at Pallipalayam, Erode. Seshasayee Brothers (Private) has promoted as Seshasayee Paper and Boards Limited (SPB), incorporated in June 1960, limited in association with a foreign collaborator M/s Parsons and Whittemore, South East Asia Inc., USA. After the commencement of commercial production, having fulfilled their

49 performance guarantee obligations, the foreign collaborators withdrew in 1969. SPB commenced commercial production in December 1962, on commissioning a 20000 TPA integrated facility, comprising a Pulp Mill and two Paper Machines, capable of producing, writing, printing, kraft and poster varieties of paper. The plant capacity was expanded to 35000 TPA in 1967-68, by modification and addition of a third paper machine. In the second stage of expansion, undertaken in 1976, the capacity was enhanced to 55000 TPA, through addition of a 60 TPD news paper machine. SPB undertook various equipment balancing and modernization programmes, since then, for improving its operating efficiency, captive power generation capacity, etc. up to 1992-93. The company embarked on an expansion / modernization project to enhance its production capacity from 60000 tonnes per annum to 1,15,000 tonnes per annum. The said expansion project was completed in December 2000. After successful trials, the commercial production was commenced on July 1, 2000. The current installed,capacity stands at 1, 15,000 tonnes per annum. 2.8. Operating Performance of the Select Paper Mills: At a Glance Installed Capacity of the Paper Mills The installed capacity of the select paper mills is presented in the following table.

50 TABLE 2.1 Installed Capacity of the Select Paper Mills Year Installed Capacity (in Tonnes) TNPL SPB 1998-99 1,80,000 60,000 1999-00 1,80,000 60,000 2000-01 1,80,000 1,15,000 2001-02 1,80,000 1,15,000 2002-03 2,30,000 1,15,000 2003-04 2,30,000-1,15,000 2004-05 2,30,000 1,15,000 2005-06 2,30,000 1,15,000 2006-07 2,30,000 1,15,000 2007-08 2,30,000 1,15,000 Source: Compiled from the Annual Reports of the Paper Mills The installed capacity of the TNPL was 1,80,000 TPA from 1998-99 to 2001-02, and thereafter it was raised to 2,30,000 TPA. The installed capacity of the SPB was 60,000 TPA for the years 1998-09 to 1999-00 and it was increased to 1,15,000 TPA in the year 2000-01. Capacity Utilization of the Paper Mills Table 2.2 reveals the capacity utilization of the select paper mills for a period often years from 1998-99 to 2007-08.

51 TABLE 2.2 Capacity Utilization of the Select Paper Mills Year Capacity Utilization (%) TNPL SPB 1998-99 97.82 98.47 1999-00 99.37 100.07 2000-01 106.17 71.54 2001-02 102.37 88.53 2002-03 100.56 98.86 2003-04 84.46 101.97 2004-05 85.47 100.00 2005-06 100.00 106.00 2006-07 100.50 107.00 2007-08 106.76 108.00 Average 98.34 98.04 Source: Compiled from the Annual Reports of the Paper Mills It is inferred from the above table that the average capacity utilization of the TNPL and SPB is 98.34% and 98.04% respectively during the study period. There is an erratic change in the capacity utilization of the TNPL during the study period. From 1998-99 to 1999-2000, and from 2003-04 to 2004-05, there was underutilization of capacity in TNPL. From 1998-99 to 2002-03, except 1999-00, there is underutilization of capacity in SPB, thereafter the capacity utilization of the SPB has increased gradually.

52 Production of Paper and Paper Products in the Paper Mills The production of paper and paper products in the select paper mills is given in Table 2.3. TABLE 2.3 Production of Paper and Paper Products in the Select Paper Mills Year Production (in Metric Tonnes) TNPL SPB 1998-99 176075 59083 1999-00 ---i 178871 60042 2000-01 191106 82240 2001-02 184267 101812 2002-03 167878 113684 2003-04 182215 117271 2004-05 196241 118854 2005-06 230079 122003 2006-07 231161 123468 2007-08 245471 124312 Average 198336 102277 Source: Compiled from the Annual Reports of the Paper Mills It is seen in the above table that the average production of paper and paper products of the TNPL and SPB is 198336 metric tonnes and 102277 metric tonnes respectively. The production of paper and paper products in TNPL gradually increased from 176075 metric tonnes in 1998-99 to 191106

53 metric tonnes in 2000-01 and 245471 metric tonnes in 2007-08. The production of paper and paper products of the SPB also increased from 59083 metric tonnes in 1998-99 to 82240 metric tonnes in 2000-01 and 124312 metric tonnes in 2007-08. Sale of Paper and Paper Products in the Paper Mills in Table 2.4. The sale of paper and paper products in the select paper mills is given TABLE 2.4 Sale of Paper and Paper Products in the Select Paper Mills Year Sales (in Metric Tonnes) TNPL SPB 1998-99 177079 59873 1999-00 178764 57530 2000-01 191049 74162 2001-02 184224 108704 2002-03 167845 112970 2003-04 177130 116598 2004-05 201240 118264 2005-06 230031 121332 2006-07 231109 123199 2007-08 245432 124181 Average 198390 101681 Source: Compiled from the Annual Reports of the Paper Mills

54 It is inferred from the above table that the average sale of paper and paper products of the TNPL and SPB is 198330 metric tonnes and 101681 metric tonnes respectively during the study period. The sale of paper and paper products in TNPL increased from 177079 metric tonnes in 1998-99 to 191049 metric tonnes in 2000-01 and 245432 metric tonnes in 2007-08. The sale of paper and paper products in SPB increased from 57530 metric tonnes in 1999-2000 to 116598 metric tonnes in 2003-04 and 124181 metric tonnes in 2007-08. Net Profit of the Paper Mills paper mills. Table 2.5 reveals the information pertaining to the net profit of the TABLE 2.5 Net Profit of the Select Paper Mills Year Net Profit (Rs. in Lakhs) TNPL SPB 1998-99 1586.41 325.71 1999-00 1624.55 514.17 2000-01 7642.77 284.40 2001-02 3530.87 269.16 2002-03 5203.95 1688.34 2003-04 5284.49 1966.17 2004-05 3794.60 658.44

55 2005-06 8054.57 1791.30 2006-07 8606.38 4140.17 2007-08 11283.00 4579.03 Average 5661.11 1621.68 Source: Compiled from the Annual Reports of the Paper Mills It is seen from Table 2.5 that the average net profit of the TNPL and SPB is Rs.5661.11 lakhs and Rs. 1621.68 lakhs respectively during the study period. The net profit of the TNPL was subject to erratic change, and it increased from Rs. 1586.41 lakhs in the year 1998-09 to Rs. 3794.60 lakhs in 2004-05 and to Rs. 11283 lakhs in 2007-08. There existed a similar trend in the net profit of the SPB during the study period. The net profit of the SPB increased from Rs. 325.71 lakhs in the year 1998-09 to Rs. 658.44 lakhs in 2004-05 and to Rs. 4579.03 lakhs in 2007-08. 2.9. Summary The art of paper making was developed in China in the year 105 AD by Ts ai Lun, a chemist and it has reached India through the Arabs. Indian paper industry is the 15th largest paper industry in the world. Paper industry is one of the key industries of a country and it supplies various types of paper and paperboards to a large number of users, such as educational institutions, companies, packaging, wrapping, printing, newspapers, magazines, etc. The first paper mill in India was set up at Sreerampur, West

56 Bengal, in the year 1812 by William Cary. In 2004, India had 525 paper units. Of this, wood-based units constituted 32, the agro-based constituted of 110 units and the wastepaper-based were the remaining 383 units. In Tamilnadu, there are a number of small and medium sized paper industries producing less quantity of paper and paper products. Besides, there are two large scale paper mills in Tamil Nadu, namely, the Tamil Nadu Newsprint and Papers Limited and Seshasayee Paper and Boards Limited. The government regards the paper industry as one of the 35 high priority industries of the country.