India’s flexible packaging enjoys continuing growth despite a stuttering economy

The back-drop to the continued growth in flexible packaging has seen India’s economy falter in 2017. The results posted in the first fiscal quarter ending June 2017 saw the worst quarterly performance of Prime Minister Modi’s tenure and China overtaking India as the world’s fastest growing economy. The economy, and in particular the unorganised sector, was hit in November 2016 by the surprise announcement that all high denomination rupee notes ceased to be legal tender overnight. Already reeling from this shock announcement the Indian economy has failed to gain momentum in 2017 as uncertainty surrounded the introduction of the Goods and Service Tax (GST) eight months later.

The roll-out of GST caused the economy and in particular manufacturing to stall. This double-whammy has had a major impact on India’s unorganised sector, which deals primarily in a paperless cash-only environment, and has borne the brunt of both government initiatives. This has had major implications on the country’s flexible packaging landscape and the balance between the organised and unorganised market sectors.

What’s driving India’s flexible packaging growth?

We expect that over the next five years flexible packaging will grow at nearly 10% p.a. However, the expected growth in the organised and unorganised sectors will change significantly as the market comes to terms with demonetisation and GST. The organised sector will directly benefit from these government initiatives and continue to deliver strong growth over the next five years.

In contrast, we expect the volume of business conducted in the unorganised sector to diminish at a fairly rapid rate as the government push for a more structured industrial framework. Companies themselves have a financial incentive to be GST compliant as tax credits pass along the supply chain, which naturally lends itself to more business moving into the organised sector. Even in 2017, our industry sources have indicated that there have already been major changes in the balance between the organised and unorganised sectors.

In June this year, the government provided a boost to the food processing industry by announcing the second biggest reform to foreign direct investment (FDI) by relaxing regulations and allowing 100% FDI. The simplification of the country’s tax regime via GST and the relaxation of FDI are both designed to make India a more attractive proposition to foreign investors. The flexible packaging supply chain also benefits from the continued efforts of the Ministry of Food Processing Industries (MoFPI) providing financial support to various construction schemes such as Mega Food Parks and cold store facilities, along with hosting events such as World Food India.