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When India's Newspaper Economics is Already Broken, Why Blame Modi's Newsprint Tax?

While troubling, we should question whether a tax on newsprint imports can actually revive the domestic paper industry and have it overcome its quality concerns.

Newspapers were the news this month as a little-thought facet of their business, newsprint or cheap archival paper, came into the public spotlight.

The Union Budget 2019 announced a 10% customs tax on newsprint imports – a move which publishers have said would bring them to the brink of collapse. 

Opposition politicians and columnists slammed the decision, saying that the new rule threatened democracy and that news would not reach citizens who lived in areas of low Internet penetration — since newspapers get to places in the country that broadband and 4G do not.

After years of heady increases in circulation, India’s newspapers have more recently seen a slowdown in growth. Competition with the Internet and television for a customer base and ads has eaten into their bottomline. 

But while the custom levy is not great news for the print media, it’s not time to write the industry’s obituary yet, especially when they have bigger fish to fry.   

Selective with truth 

“There is no doubt that advertisers are looking at other places to take their ad spend: digital, television, radio, what have you,” says Rajiv Lochan, former CEO of Kasturi and Sons Lts, publishers of the Hindu, who stepped down in May 2019 after more than five years in the hot seat. 

Lochan was not speaking on behalf of The Hindu Group, but as an industry observer of many years.

The price of newsprint is not the only concern: “The reality is that returns are falling but the question to ask is how good the underlying product is. Are customers really unwilling to pay a higher cover price?” he  asks.

For years, newspapers have been extremely reluctant to charge readers a higher price for their daily read despite rising costs. Newspapers make a marginal loss on every copy sold because the reader pays less – way less – than what it costs to produce, print and deliver each copy.

The deficit is made up by advertising but the industry-wide ratio of advertising income to total revenue – which in the 1950s, was on par with the world average of around 50% – is today, according to anecdotal evidence, greater than 90%.

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The strategy – pioneered by Bennett Coleman and Co. Ltd, publishers of the Times of India group – has delivered fabulous profits for the largest players (like BCCL) but as the print industry’s share of the advertising pie has fallen, some newspapers have responded by launching innovative, and often unethical, revenue generating schemes, while also lobbying with the government for concessions.

In 2008, for example, paper imports from developed nations were made duty free – which amounted to roughly half the annual consumption of the Indian newspaper industry.

In January 2019, the ministry of information and broadcasting brought in a 25% ad rate hike — the second such revision after a 2013 increase of 19% on rates paid for press ads from various ministries and public sector agencies, the Press Information Bureau announced. 

In addition, there was no service tax levied on the sale of ad space until 2016-17, an exemption other media and entertainment sectors, such as radio or TV, did not enjoy. 

However, even as one government hand gave in plenty, the other took away: in June 2019, Reuters reported that the Narendra Modi government had cut off advertisements to three major newspaper groups (The Times of India, Telegraph and The Hindu) over their critical coverage of several issues including the Rafale deal. In some cases, cutting off  government advertisement streams hurt up to 15% of the newspaper’s total revenue.

In times like this, a duty hike on newsprint imports is not helpful. But that brings us to the other player in this game – domestic manufacturers of newsprint and paper. Things have been hard for Indian manufacturers as the consumption of newsprint underwent a marginal decline for two years. It was at 2.4 million tonnes in FY’19, an analysis by CARE Ratings calculated. 

Of this, 1.06 million tonnes were produced domestically and 1.3 million tonnes were imported.

Lochan agrees that Indian newsprint manufacturers “have the opportunity to increase [their] market share.”

“And the possibility that with more capital they could do more, is also true. I hold a very agnostic point of view in this respect. I see where the government is coming from,” he adds.

Preferential treatment

“For the longest time, the industry has had many tax breaks, and was led by the nose by the cover price by Times of India, predominantly,” Lochan says. 

He says publishers’ calling the new duty an attempt to suppress democracy is a stretch. “It’s a long con that what they publish is news for the common man. And as far as the import of commodities is concerned, the government is right about imposing customs duty. It is a fair move. Businesses saying this will hurt democracy is glorious rhetoric, and frankly, a bit of a stretch,” he says.

The tax on newsprint has raised the question as to what Indian publishers pay domestic manufacturers of newsprint. Photo: Pexels

He believes the only way to run a newspaper business is to pass on these costs to readers, and secondly, “if journalists want a meaningful raise, they won’t get it at cover prices of Rs 3 or Rs 5 or Rs 6. They will get it if the rise of costs is passed on to the readers.”

Indeed, why are costs not passed on? “Basically, ​the fear — in my view, misplaced — is that circulation figures could fall and take away advertising revenue. That is one possibility and no one wants to take that chance,” he says.

The Hindu, the undisputed leader among English papers in south India charges up to Rs 18 for its editions, compared to the Times of India which costs Rs 7.

Home advantage?

Why do English-language newspapers in India import newsprint at all?

The current reality of domestic paper is that “their quality does not meet standards and there is no market for its export. No foreign buyers would buy our newsprint over North American or Norwegian manufacturers,” said Lochan, adding that this quality gap must be made up.

What doesn’t help is that the price of domestically produced newsprint is barely lower than their imported counterparts. Matching what publishers pay overseas sellers will be a challenge when the latter can charge much lower prices to retain leverage in an important emerging market such as India. 

So what do Indian publishers pay domestic manufacturers?

“It depends a lot on the buyer,” says Vijay Kumar, the secretary general of the Indian Newsprint Manufacturers Association (INMA).

Publishers all echo the concern over quality: heavier Indian-made paper, the minimum grammage of which is 45 gsm (grams per square metre), will slow down printers’ existing machines which use 42 gsm paper, and overheat the units more quickly.

The resultant optical quality will not be up to mark.

Overseas, newspaper readership is on a downward slope and demand for newsprint is on the decline. Large paper manufacturing multinationals are keen to maintain a toehold in the multilingual Indian market. 

“Hindi and regional language newspapers continued to drive growth in the print industry, though Hindi newspapers were losing their share to other regional language ones and gaining readers in smaller cities and rural areas,” a 2018 KPMG report said.

The print media industry grew to Rs 318.9 billion in FY18, according to the multinational consultant — an increase of 3.4% over the previous financial year, in spite of the effect of the-then new Goods and Services Tax, which streamlined profits. But they had no long time effect on the bottomline because of ad sales tax credits.

Plus, Rs 631 crore was spent by the Central government on GST ads alone, not counting ad campaigns by state governments and public sector undertakings, Business Standard reported this January.

“While the operating profitability of most print media companies was affected this fiscal, the credit profiles of large players exhibited resilience because of strong balance sheets and ample liquidity. The recovery next fiscal will restore profitability to 22-24% levels seen through last fiscal,” the newspaper noted. 

At what price?

“In 1996, when the government defended its 10% import duty on newsprint — as a move to provide a level playing field to domestic manufacturers, it also opened up the sector to private investment,” said INMA’s Kumar.  The INMA represents 70% of all domestic newsprint producers.

In 2008, former Union finance minister P. Chidambaram exempted the press from import duties — a bonanza for publishers which has continued till the latest Budget.

The consequent decade-long tax holiday on foreign-made paper hit domestic producers hard, and forced several mills to shut down, Kumar claims. Those which survived could not operate at full production capacity.

The Hindustan Newsprint Limited (HNL) at Kottayam and earlier, the Mysore Paper Mill (MPM) were both ordered shut due to pollution reasons. When allowed to reopen, neither could be fully functional because of a “lack of working capital,” says Kumar. 

To top it all,  the domestic industry has been unable to compete with international producers.

The price for important newsprint is already exorbitant, say some, while others believe it is unexpectedly low. Photo: PTI

Indian printers prefer light-weight paper made of softwood which is not grown in India and which is thus sold to Indian publishers at “unexpectedly low prices” keeping India’s market in mind, Kumar says.

The headline price of imported paper, which can be volatile, was at $500-550 the past quarter, which is not the highest that Indian publishers have paid for the commodity. Last year, the prices peaked at $900. 

“Mills abroad sell newsprint at $650 or more while in India they can price the same product at $450 per metric tonne (PMT). Even with 10% duty this price will only rise to about $500, which is still a win for publishers. Overseas, newsprint consumption is falling, and India still has a large and positive consumer base. Exporting the paper at cheaper prices to India is done with the intention of damaging the domestic industry,” complains Kumar. 

“$550 PMT” is what Mohit Jain, executive president of supply chains at the Times Group, said the organisation paid. Jain is also part of the Newsprint Buyers Committee at the Indian Newspaper Society, an industry lobby which represents small, medium and large Indian newspaper publishers. 

But in the quarter which ended this March 2019, Canadian multinational Resolute Forest Products Inc, a supplier to Times of India, sold its product at $650 PMT in its own domestic market, its financial quarterly report revealed.

When contacted, R. Rajmohan of Malayala Manorama, who is also the president of the Association of Indian Magazines (AIM), and Anurag Batra who is chairman and editor-in-chief at Business World, refused to share how much they paid for newsprint, citing vendor-buyer confidentiality. 

The least of their worries

In his column in Mint, Aakar Patel wrote: “In major newspapers like this one, (newsprint) is imported because that is the only paper of high enough quality to be able to be printed quickly and well. The cost of the paper is roughly about Re 1 for four sheets. If the paper you are reading today has 48 pages, it has cost Rs 12 to produce, and we are talking only about the physical cost of the material. The people and processes are all separate.”

But the columnist says nothing of the astounding amount of advertising that readers must wade through in most newspapers, to say nothing of paid news which appears in various national dailies. 

The Hindu’s former CEO says that the cost of a 40-page newspaper counting the power consumption, mechanical amortisation, staff, cost of ad sales, ink, and so on is between Rs 18 and Rs 25, “advertising tries to make up for the difference in cover price and at times turns a profit.”

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Times Group’s Mohit Jain, however, says domestic production fails to meet demands. “India’s consumption of newsprint is 2.5 million tonnes while Indian factories can only make about 1 million tonne,” he adds.

But manufacturers strongly dispute the charge of domestic shortage, calling the numbers stated by publishers a ‘white lie’.

“It will take a little while to get the wheels turning but we look forward to a change of fortunes from the BJP government. Moreover exports were opened up last year and China has stopped making paper domestically,” says Kumar.

The future is a blank page

Though there is a long way to go, Indian manufacturers are betting on China’s ban on domestic manufacture of paper over environmental concerns, and are keen to get in the fray to grab new customers.

The Indian Newspaper Society sees this differently. “China has clamped down heavily on domestic paper and become an importer of newsprint. Its environment concerns override everything and India has a natural advantage as the environment is a core concern even if we have a 20-year lag. Environment is not a tradeoff,” Jain said, as its spokesman.

Kumar says newspapers have good environmental certification in India. “We use trees grown outside forests, making Indian papers an agricultural and not forest product. Our paper is greener. Canadian, European and Indonesian manufacturers make paper from virgin forests,” he alleges.

A persistent problem plaguing the industry is the necessity to create more jobs. Needless to say the reopening of mills will create more jobs than importing paper. Large dailies worrying about increase in costs will now be forced to take another look at their business models and perhaps be forced to raise their cover price and improve their base product, the dailies themselves. 

Divya Guha is an independent Kolkata-based journalist.