India can emerge as a significant global player if the sector strengthens its capabilities in terms of technology, skills, and efficiency
The impact of Covid-19 on the packaging sector has been mixed depending on the portfolios of different end-user industries. The Indian packaging sector, even in the pre-Covid era, has been witnessing considerable growth largely due to increased globalization of trade in goods and services and the emergence of new trade models, such as e-commerce and organized retailing.
E-commerce in India is projected to grow rapidly at a CAGR of 27 percent from 2017 to 2026 to reach $200 billion by 2026. This has been further boosted by the current pandemic due to closures of store retailing consequently to the lockdowns. With the projections of the impact of the pandemic to be long-drawn, consumer preferences towards e-commerce and e-retailing will continue to be a trend beyond the crisis. Currently, India’s share in the overall parcel shipments (transit packaging) worldwide is less than 1 percent.
With the steep growth of e-commerce and e-retailing globally, and in India, transit packaging and omnichannel packaging are emerging as the most potential segments — maintaining safety, hygiene, and integrity of goods — and where the Indian packaging industry has considerable scope for expansion.
Whilst the closure of stores has reduced the need for disposable in-store packaging in the short term, demand has shifted to alternative uses. In the foodservice segment, disposable takeaway packaging options have registered higher demand as consumption patterns shift to food delivery. The emergence of new food businesses, and local restaurants and food delivery giants launching their own delivery or food takeaway services are warranting new requirements of packaging.
The Indian packaging industry is expected to reach $72.6 billion by 2020, growing at a CAGR of 18 percent during 2016-21. Covid-19 may have derailed this growth considerably; however, certain manufacturing sectors, such as pharmaceuticals, packaged food and beverages, functional food, and hygienic products among the FMCG, have been less affected by the crisis, and have rather seen a sizeable growth both in demand and in production, raising the demand of packaging.
By far with a low share of 1.4 percent in global exports, India is a net exporter of packaging materials. The export of packaging materials from India was estimated at $843.8 million in 2018-19, witnessing a y-o-y growth of 14.1 percent. India has emerged as a market leader in quite a few sub-segments of packaging, such as the Flexible Intermediate Bulk Container (FIBC) and Biaxially-oriented Polyethylene Terephthalate (BOPET) films.
Nevertheless, China dominates the sector and is the largest manufacturer and exporter of packaging materials and products globally. While the trade in the sector has been severely affected by the global pandemic lockdowns as in the case of other sectors, the pandemic driven isolation of China have been forcing the packaging companies worldwide to relook at their supply chain vulnerabilities, which is accelerating the shifting of their businesses and sourcing to other second world countries, preferably India.
Despite the limited activity in the packaging space in India, historically, the last decade has witnessed the Indian packaging industry emerging as an attractive investment avenue for the global players, largely in the flexible packaging segment. Predominantly an unorganized set-up, the flexible packaging industry has undergone a certain degree of consolidation in recent years, due to the acquisitions and mergers, which has brought in much-needed investments in the industry in technology, scale, and skill development.
Although M&A activity is likely to be more subdued in the short term due to the Covid disruptions, as the economies recover, the M&A activities are likely to be heightened in the medium to longer-term, as consolidation in the sector is anticipated to continue.
The industry is constantly faced with several challenges in terms of cost, technology, knowledge, regulations, and the environment. The changing economic conditions, trade, and market preferences imposed by the pandemic have added to the woes of the industry in the form of raw material shortages, particularly seen in kraft paper-based packaging, imports of machinery, and a slowdown in production and commerce.
Notwithstanding the challenges, the growth drivers are distinctly defined for the industry even during this current crisis. It is thus, for the industry to leverage the considerable opportunities available in the various spaces and emerge as a significant global player in the sector. Strengthening capabilities in terms of technology, skills, efficiency, and competitiveness will be crucial going forward. Package manufacturing and packaging services are the two potential segments for the Indian packaging sector, where the industry can expand considerably both onshore and offshore.
The author is an economist with the Export-Import Bank of India. Views are personal