With first quarter results to come for FMCG businesses and our first quarter reviews estimating current year capacity build for packaging offset presses and narrow web flexo label presses in this issue of august 2022, it is time for us to review the growth of the economy and industry for the year. Capacity building for all packaging categories continues apace (for flexible packaging it has never slowed down even during the pandemic years). For the paperboard packaging and label industry, the expansion in the coming year reflects pent-up capacity creation resulting from the ambiguities of the past two years.
Capital goods from Europe are especially more expensive due to rising raw material prices, supply chain disruptions and energy costs. Delivery times are also abnormally long and with the devaluation of the rupee and the rise in US Fed rates, it may be better to order now than later. Capacity building is risk taking in anticipation of demand growth and for our industry, in India, growth is extremely likely – although when and how much – can slow down slightly at times.
A major label press manufacturer assures us that economic growth is in the double digits and we believe they are not just talking in terms of nominal growth (which includes inflation). But based on its expectation of the demand for Made in India label presses for the current year.
TN Ninan, the respected and outspoken business journalist writes in the Business Standard of July 30, 2022, that for “its macroeconomic performance in 2020 and 2021, and IMF forecasts for 2022 and 2023, Turkey shows an average annual growth of 5, 1% – which beats everyone in those four years.
“According to the IMF dataset for 30 countries highlighted, China is the second best after Turkey with an average growth in 2020-2023 of 4.55%, followed by another surprise: Egypt, with 4.3%. India comes in fourth with 3.9% followed (and you will have a hard time swallowing this) by the crisis in Pakistan with 3.6%. With Bangladesh already performing very well on the growth and development metrics, it would seem that the Islamic world has produced quite a few winners.
Ninan further writes in his op-ed: “As for India’s balance sheet, it fared poorly in the first pandemic year (fiscal year 2020-21), having already slowed sharply in the previous year. But he achieved one of the quickest recoveries afterwards. And according to IMF projections for the next two years, the economy is expected to grow the fastest among the institution’s shortlist of 30 countries. Average growth this year and next is estimated at 6.8%. The IMF’s optimism is shared by many multilateral and private forecasters. Some national analysts have gone so far as to project medium-term growth of up to 7-8%”.
IppStar’s professional industry analysis and projections confirm the IMF’s optimism for the current year. (For the afterword on the cyclical downturn, read Ninan’s article.) That’s partly because we see the three verticals we seek, publishing, printing and packaging as a continuum. It is difficult to design or execute projects in a particular fiscal year. Machines on order can rarely be delivered in time to be put into service before March 31 in order to benefit from all the advantages of depreciation.
Building new plants and setting up capacity building is time consuming and so for the packaging industry, especially large film extrusion lines, these have continued during the pandemic in India. We recently visited Avery Dennison’s new factory in Greater Noida which confirms the long term growth and investment in our industry. Our recent visit to the Echaar factory in Ambernath, also built during the pandemic, reflects the same long-term vision and constraint. Thus, if the economy is a complex composite and difficult to grasp, our industry is nevertheless a global vector, where trade, social good and growth seem to coincide (for the most part). Perhaps there is something to learn from our industry for economists too, for us it is certainly a window on the country’s ambitions for modernity.