The Indian packaging industry is experiencing remarkable growth, expected to reach US$ 204.8 billion by 2025. On the back of this trend the paper packaging segment, which accounts for 63% of total paper demand, is showing promise, projected to grow to US$ 23.6 billion by 2028. The future outlook is positive, with sustainability and eco-friendly materials at the forefront.
The industry must adapt to remain competitive by understanding customer needs and transforming its structure, people, and processes for the evolving landscape.
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Packaging is currently the fifth-largest sector of the Indian economy. The industry is expected to reach US$ 204.81 billion by 2025, registering a CAGR of 26.7% during the period of 2020-25. The paper and paperboard packaging business experienced strong growth over the last decade, driven by growth in e-commerce, pharmaceutical, food processing, manufacturing, FMCG, and healthcare sectors.
The paper packaging (segment of packaging industry) market size is expected to grow from US$ 16.7 billion in 2022 to US$ 23.6 billion by 2028, at a CAGR of 5.7%, according to IMARC Group. India’s organised paper packaging industry revenues grew by ~35% in in fiscal 2022 and are likely to sustain its growth momentum, with printing revenue 14-16% higher this fiscal, according to CRISIL Ratings.
This will increase operating profitability by 100–150 basis points (bps) YoY to between 17-18% in fiscal 2023, in addition to the advantages of price increases implemented last fiscal year and higher operating leverage. Better cash flow generation will support planned phased capacity additions and maintained stable credit profiles.
The industry structure comprises more than 900 paper units, with an installed capacity of nearly 30.73 million metric tonnes. As of March FY23, around 553 mills are operational, with a total operating capacity of around 25.61 million metric tonnes. Total production for the year of 2021-22 stood at 22.504 million metric tonnes, growing by 3.69% YoY. In terms of value, exports of paper, paperboard, and newsprint reached US$ 3.2 billion in 2021-22, growing by 63% YoY. Its exports in 2022-23 stood at US$ 2.95 billion.
Packaging paper demand
India’s packaging paper segment has grown strongly in recent years, and today the segment makes up 63% of total paper demand in India, up from 52% six years ago. Between 2017 and 2022, the Indian paper industry experienced a CAGR of 3.27%.
While packaging paper has grown by 7% during this period and specialty paper by 16% (albeit from a smaller base), newsprint and printing paper both saw declines. The Indian paper industry is shifting its focus towards packaging paper due to significant underlying growth drivers in recent years.
Source: Kanvic, IPMA, Care Ratings
Packaging paper demand is continuously increasing, causing structural change in the Indian paper industry.
Key drivers of growth
The paper packaging industry is growing rapidly, and there are a number of factors driving this growth. Some of the key sectors driving growth in the paper packaging industry growth include:
- Growth in e-commerce: The packaging paper segment has grown quickly due to the flourishing e-commerce sector, particularly after the Covid-19 pandemic. India’s e-commerce market is predicted to increase from US$ 29 billion in 2020 to just over US$ 100 billion by 2025. Due to this trend, there is an increased demand for packaging supplies like corrugated boxes, cartons, and wrapping paper.
- Rising income levels: Consumer spending has increased as a result of the higher income levels of the middle class, and more people are purchasing packaged goods The expanding share of the middle class, from 14% to 31% between 2004-05 and 2021-22 (projected to reach 63% by 2047) will remain a major driver of growth.
- Demand from multiple sectors: Several industries, like fast moving consumer goods (FMCG), agriculture, pharma, e-commerce etc are increasingly dependent on the paper and packaging industries to finish the production of their goods.
- Changing industry trends: Consumers have been increasingly focusing on healthcare and hygiene after the COVID-19 pandemic. As a result, the demand for tissue paper, table napkins, toilet paper, paper towels, and other paper products has skyrocketed.
- High-quality product demand: The increasing demand for high-quality paperboard and packaging paper has encouraged paper manufacturers to introduce innovative products and expand their distribution channels.
- Single-use plastic ban in India: On August 12, 2021, the Indian Government’s Ministry of Environment, Forest, and Climate Change issued the Plastic Waste Management Amendment Rules, 2021, to reduce plastic waste and promote eco-friendliness. This move has led to good traction in demand for paper-based alternatives such as paper bags and cups.
- Rising wave of sustainability and eco-friendliness: Consumer preferences are also undergoing a significant transformation, as 60% of consumers indicate that socially responsible or sustainable products constituted at least half of their most recent purchases. Packaging paper and paperboard provide an eco-friendly solution for businesses seeking to deliver their products safely and efficiently.
According to Dr. Saikat Banerjee, professor at the Indian Institute of Foreign Trade, “The growth of the paper packaging industry is being significantly influenced by the rise of e-commerce. Growth of e-commerce, in both B2C and B2B spheres, has been remarkable, and it appears to be a long-lasting trend. There exists a global awareness of the environmental peril presented by plastic packaging. Paper packaging is commonly acknowledged as a sustainable and environmentally friendly option.”
He further added, “E-commerce enterprises have pivoted towards paper-based packaging to align with current trends. The reason may be due to their genuine concern for the environment. Nevertheless, a new trend is apparent worldwide, and the Indian market is also experiencing it.”
Challenges of paper packaging industry
The Indian paper industry remains a largely fragmented sector. It consists of small, medium, and large paper mills, with production ranging from 5 to 2,000 metric tonnes per day. Although the growth possibilities remain strong, the industry faces some complex and evolving challenges that affect its growth.
India is import dependent for paper and paperboard. Imports of paper and paperboard grew by 47% from ₹7,839 crore in FY22 to ₹11,513 crore in FY23, according to DGCIS. Substantial quantities are imported under free trade agreements with ASEAN, South Korea and Japan, as well as preferential import duties from China under the Asia Pacific Trade Agreement (APTA).
- High cost of raw materials: The cost of raw materials for the paper packaging industry, such as wood pulp and recycled paper, has been rising in recent years. This is due to factors such as the increasing demand for paper from emerging economies, the shortage of timber, and the rising cost of energy.
- Changing technology: The paper packaging industry is constantly evolving, with new technologies being developed to improve the efficiency and sustainability of paper production. This can be a challenge for businesses in the industry, as they need to invest in new equipment and training in order to stay competitive.
- Competition from unorganized players: The Indian paper packaging industry is highly fragmented, with a large number of small and medium-sized enterprises (SMEs). These SMEs often operate in the informal sector and on price and do not have to comply with the same regulations as larger companies.
- Highly inadequate credit flow: The paper packaging industry is capital-intensive, and businesses in the industry often need access to credit to finance their operations. However, the credit flow to the industry is often inadequate, which can make it difficult for businesses to invest and grow.
- Lack of best manufacturing practices: The paper packaging industry in India is not as advanced as in some other countries. This is due to a number of factors, such as the lack of investment in research and development.
- Developing new products and processes: The industry is developing new products and processes that are more sustainable. This includes developing new types of paper that are made from recycled materials or that are biodegradable.
- Lack of skilled manpower: The paper packaging industry requires its workforce to work with advance machines but there is lack of skilled workforce which becomes a challenge for this industry.
Future outlook
The future of the paper packaging industry is poised for significant transformation. Sustainability will be a defining factor, with a strong emphasis on eco-friendly solutions. As environmental concerns grow, paper packaging could continue to replace plastic alternatives, aligning with global efforts to reduce plastic waste. Circular economy practices are expected to become mainstream, encouraging the reuse and recycling of paper-based packaging materials, reducing their environmental footprint.
Innovations in paper manufacturing, such as improved strength and moisture resistance, will expand the range of products that can be safely packaged in paper. Additionally, smart packaging solutions that incorporate digital technologies for tracking and information sharing should become more prevalent, enhancing convenience and consumer engagement.
Furthermore, as consumer preferences evolve, paper packaging will need to cater to changing demands, such as an increased focus on health and hygiene post-pandemic. The industry is looking respond with specialised products like antibacterial paper packaging for food and healthcare products.
