India’s packaging sector to take off; challenges looming

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Forecasted to be the world’s fifth largest consumer economy by 2025, by consultancy McKinsey & Co, India’s growing consumption power is driving its retailready packaging sector, which is also adopting new technologies, says Angelica Buan in this report. But all is not rosy on the domestic front, with the country's new government, led by Prime Minister Narendra Modi, facing challenges such as power and skilled labour shortages, to improve India’s appeal as an investment destination.

Agrowing retail ready packaging (RRP) market is earmarked for the Asia Pacific region, attributed to emerging trends such as ease of product replenishment, a progressive organised retail sector and its use as a marketing tool or branding, according to a study by Research and Markets. The UK-headquartered analyst group says that globally, RRP is positioned for a CAGR of 3.57% over the period from 2013-2018.

In the region, China and India will top the RRP sales growth over the next five years, growing at annual rates of 9% and 8% respectively, according to Smithers Rapra in its Future of Retail Ready Packaging to 2017 report.

India’s middle classes to drive packaging growth

India’s growing middle class and increased consumerism are driving the growth of RRP. The food and beverage (F&B) industry, as well as the fast moving consumer goods (FMCG) sectors, are pushing the demand for both rigid and flexible plastics packaging, with the preference being flexible packaging.

In-mould labelling is also gaining popularity as are technologies using bioplastics and nanoparticle layered plastic packaging, according to market intelligence firm Netscribes Inc.

The domestic plastic packaging market is clearly segmented into the organised and unorganised sectors wherein the organised sector caters to the larger industry base that requires plastic packaging.

Large number of industry players

There are a number of players in the country’s retail plastic packaging sector, says the British Plastics Federation (BPF) that indicates India’s processing sector is comprised of some 25,000 companies, engaging an estimated 3 million workers.

Gujarat state in Western India leads in plastics processing, with over 5,000 plastics firms.

In line with the BPF study, it projects that plastics consumption could reach 16 kg/head by 2015. In addition, Plastindia Foundation’s (Plastindia is the apex body of major associations in the country) assessment is that India will be among the top ten packaging consumers by 2016, with demand surging to US$24 billion, while the country’s Union Minister for State for Commerce and Industry forecasts that the Indian packaging industry will be valued at US$32 billion by 2025.

Packaging accounts for 48% of all commodity polymer consumption in the country and is growing at 15% annually, gargantuan by all standards. The main application areas include multi-layer films, BOPP films, shrink and stretch wraps as well as thinwall, thermoformed and blow moulded containers.

Unravelling the issues

But the upbeat packaging industry is also peppered with downsides. In its report titled Plastic Packaging Market in India 2014, Netscribes says the industry has to contend with several bottlenecks. For instance, non-governmental groups are trying to get the government to ban PET in pharmaceutical packaging.

Meanwhile, the domestic market is being flooded with cheaper Chinese imports. Feeling the strain in the competition, and also due to the Free Trade Agreements (FTAs), AIPMA (All India Plastics Manufacturers Association) is urging the government to hike the custom duty on finished imported goods to 20%.

AIPMA also says the increase in the import duty on raw materials from 5% to 7.5% is not helping the small/medium-size players in the plastics sector. Plus, this has had a cascading effect on polymer raw material prices that have seen unprecedented rises, to the tune of 30%.

Furthermore, the shortage of skilled labour is dragging the industry down. While India has a sizeable population of 1.15 billion, its manufacturing sector workforce lacks the required skills. As China’s labour market becomes more expensive, India’s vast, inexpensive workforce and sizeable domestic market should see it becoming the world’s next industrial powerhouse. Instead, the manufacturing sector has held steady at about 15% of national output for a generation or more.

Consultant McKinsey & Co describes India as suffering from “a glut of subscale, low productivity” industrial enterprises. Only 11% of those who work in Indian manufacturing do so in businesses with 200 or more employees, compared with 29% in Indonesia and more than half in China. The country’s manufacturers suffer dismally low productivity, too.

McKinsey says remedial measures include labour laws to reducing arcane inspections and rationalising the tax system.

Finally, the most crucial issue facing the industry is power shortage, an electricity demand deficit of between 12-13%. India’s power woes in 2012 saw a two-day black out and more recent power outages triggered protests in India's capital of New Delhi.

Nearly 300 million people in India have limited or no access to electricity, according to the World Bank. India currently has around 245 gigawatts of generating capacity and is trying to boost that to 288 gigawatts by 2017. By comparison, China, with a larger population, had 1,247 gigawatts of installed capacity in 2013. India’s power plants operate at only around 70% of capacity, largely because of coal and natural-gas shortages.

India’s newly elected Prime Minister Modi has provided new hopes to the industry sectors with plans to revamp the sector as he did in the western state of Gujarat, where he served as Chief Minister for more than a decade. Gujarat is now one of a few states in India that generates more electricity than it consumes.

Strength in technology

Technology advancements are also being touted to support the growth of the packaging sector, according to Mumbai-based Packaging Industry Association of India (PIAI). These include aseptic, retort and biodegradable packaging to enhance product shelf life. The 6.8 milliontonne plastic packaging market will expand further along with the increasing use of innovative packaging equipment and the growth of the flexible packaging market, according to PIAI.

Technology-wise, multinational companies (MNCs) are better equipped than local manufacturers, basically because MNCs have dedicated R&D facilities. PIAI explains that the rivalry for innovation to serve the wants of consumers for hygienic, safe and aesthetically appealing packaging is also pushing local processors to upgrade the standards of their packaging.

This can only be done with the use of high-tech machinery. Based on industry data, India imports US$125 million worth of packaging machinery from Germany, Italy, South Korea and China, with 45% of these imports coming from Germany and Italy. A wide range of machines, from plastic packaging to labelling, bar coding and scanning, as well as technologies for speciality film and laminates, multi-layer films, roto-moulded containers, are now available to local manufacturers.

Meanwhile, agencies like the Indian Institute of Packaging (IIP) are strengthening the manufacturing segment of the country. IIP, which operates under the Ministry of Commerce and Industry, has set up an International Packaging Centre (IPC) and academic facilities for packaging technology and management programmes in Andheri, Mumbai. With this effort, IIP aims to produce packaging professionals who will fill the labour gap, to keep the industry going.

To bridge the gap in manpower shortages, Plastindia Foundation is setting up a university in Vapi, Gujarat, offering courses in polymer processing technology and moulds and design production technology.

Good tidings for growth

Over the past two years, India's economic expansion has slowed markedly, growing by 4.7% in the 2013-14 financial year and marking the second year of sub-5% growth. But expectations of an investment-led economic turnaround after Prime Minister Modi's victory have brought in copious capital. India's new government has also unveiled a programme for rapid economic reforms aimed at creating jobs and boosting foreign investment, including plans designed to simplify taxation and reduce inflation.

All this should bode well for the plastics sector, says Arvind Mehta, Chairman of AIPMA, as he paints a more positive picture where the industry is expected to more than double its polymer consumption by 2020 to 20 million tonnes.


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