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Indian label industry in favor of FDI in retail

By Harveer Sahni, Managing Director, Weldon Celloplast Ltd. | December 14, 2011

Weldon Celloplast's Harveer Sahni says Indian converters feel the foreign investment will fuel further growth.

While the Manmohan Singh Government has deferred the implementation of their decision to allow Foreign Direct Investment (FDI) in organized multi-brand retail in India, and is still battling it out with its allies and the opposition, I decided to interact with leading players in the Label and Print-Packaging industry to get their views on how this decision will impact their industry and their business.

The total size of the Indian packaging industry is estimated to be close to $19 billion, and the industry continues to grow at a healthy rate of around 17%. With the expected inflow of FDI in retail, this growth is set to get a further boost. The politicians are adamant that the decision will affect their vote banks adversely because they are convinced that the local neighborhood retailer and the farmers will suffer. Contrary to this, industry leaders are sure that the FDI decision will benefit the farmers with better prices and that the small retailer will stand to be complemented by the presence of organized retailers. They feel it will drive rapid growth in the packaging industry. I sent to some of India's leading converters a set of questions to answer. Below are the questions and their responses. Unanimously, they give a “Thumbs Up” to this decision!

Question: Do you feel that this will drive a boom in the label and packaging industry in India?

Answers: “Definitely!” says Ramesh Kejriwal, managing director of Parkson Packaging Ltd. He further adds, “The business will move from unorganized converters to organized ones requiring quality and volumes.”

Priyata Raghavan at Sai Security Printers, echoes similar views, saying, “Yes, most definitely. It will drive the demand for packaging not only in volumes but also in quality."

Suresh Gupta, chairman and managing director, Paper Products Limited, reiterates, “Modern retail certainly drives modernization in packaging, i.e. increases demand for quality and standardization in packaging."

Amar Chhajed, Webtech Labels, one of the largest label printers in the country, states, “If FDI in retail becomes a reality, it will give a boost in demand for all kinds of packaging including labels." Amila Singhvi at International Printo-Pac Ltd. feels that the increase in demand due to FDI in retail will make the industry focus on sustainable packing and shelf-ready packs. Viresh Sheth of Kris flexipack is of the opinion that the decision will bring funds and technology to the table. Jigesh Dani of Ahmedabad-based Mahrishi Labels is sure that it will create lot of opportunities and improve quality of packaging.

Question: Will it impact the local packaging industry in a positive manner?

Answers: FDI is likely to bring in technology in cold chain development, supply chain management and packaging. The growth in the consumer market due to rapid urbanization has also continued to drive growth in packaging. Small converters have been able to grow substantially due to the opportunities coming their way. With limited existing foreign investment in the packaging sector and the expected boost in demand due to the FDI in retail, packaging companies will also expect foreign investments and alliances. The industry leaders feel that the FDI decision will have a positive impact on the industry.

Amar Chhajed feels there is no cause for worry as the Indian packaging industry has upgraded to some extent in recent years. Jigesh Dani comments that it will create competition for local venders, however still, healthy competition is good. Viresh Sheth believes that it will boost demand and packaging companies need to establish a pan-national presence to service the retailing giants who are expected to invest.

Priyata Raghavan is expecting the larger players to play a dominant role and lot of international packaging companies joining hands with local converters. Ramesh Kejriwal says, “Yes, the decision will make a positive impact but innovative display values need to be built into packages.”

Question: Will it bring in that expected billions of dollars?

“All major global retailers would like to be present in the growing Indian market and many will invest. Importantly, in addition to retail footage, this will mean investment and training in farm to store logistics infrastructure including cold chains, road-rail-water transport systems, etc. Equally important is the fact that standards on nutrition, hygiene and safety in the food chain will be strengthened, and productivity improved,” says Suresh Gupta.

Question: But is the industry geared up to meet this demand?

“Not really,” says Ramesh Kejriwal. “Most converters are still using low-end technologies with a lot of manual work."

Viresh agrees that the supplier has to be well equipped in terms of technology, quality and presence. Priyata feels that capacity and quality parameters need to be ramped up but good quality of raw materials like paper and board will be a bottleneck for growth. Suresh Gupta is sure that the industry is prepared to scale up to meet the demand as it arises.

In conclusion...
Finally, to sum it all up, I got the views of Saket Kanoria, managing director of TCPL. He says, “I feel that should FDI in multi-brand retail happen, and am sure it will at some point, it will certainly open up lots of doors and opportunities to a host of smaller suppliers who will get access to international chains and give them the potential to scale, as well as export. I think that the political opposition notwithstanding, it will be very good for India, consumers and the economy in the long run.”

The industry surely has given their thumbs-up for the decision to allow FDI in multi brand retail.
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