Budget Analysis - Paper Sector

PAPER The industry may not pass on the excise duty cuts on writing, printing and packing paper to consumers.

The measures

The excise duty on writing, printing and packing paper has been reduced from 12 to 8 per cent. Further, full exemption from excise has been provided for paper and paper products (for up to 3,500 tonnes) produced from non-conventional raw materials.

The context The paper consumption has been growing at 8-9 per cent in tune with the gross domestic product (GDP) growth. The 20 per cent increase in allocation towards education would further fuel the demand. However, paper prices have been rising continuously owing to a cost push from the rising prices of pulp and other raw materials.

The impact While welcoming the move to reduce excise duty, the paper industry remained non-committal on any price cut. “There has been an overall cost push in the raw materials such as pulp, coal, etc. The excise cut will help us absorb some of the cost push. However, a call on passing on the benefit of this cut will be taken only next week,” said R R Vederah, managing director, Bilt, the country’s largest paper producer.

Shares of paper companies, however, had a depressing day at the Bombay Stock Exchange. The share price of Bilt closed at Rs 136.90, down 1.55 per cent over the previous close.

J K Paper’s share closed at Rs 39.90, down 1.24 per cent over the previous day.

“The 20 per cent increase in allocation towards education will fuel demand and induce further investments. I do not expect an immediate impact of the excise reduction on consumers and paper prices will depend on the overall demand-supply scenario,” said Pradeep Dobhale, president, Indian Paper Manufacturers’ Association and chief executive of ITC’s paper division.