India’s Pulp and Paper Industry: Productivity and Energy Efficiency

ii ACKNOWLEDGEMENTS The authors would like to thank Joyashree Roy, Ernst Worrell, Puran Mongia, and Marta Khrushch for their valuable assistance and comments on previous drafts of this paper. Abstract Historical estimates of productivity growth in India's pulp and paper sector vary from indicating an improvement to a decline in the sector's productivity. The variance may be traced to the time period of study, source of data for analysis, and type of indices and econometric specifications used for reporting productivity growth. We derive both statistical and econometric estimates of productivity growth for this sector. Our results show that productivity declined over the observed period from 1973-74 to 1993-94 by 1.1% p.a. Using a translog specification the econometric analysis reveals that technical progress in India's pulp and paper sector has been biased towards the use of energy and material, while it has been capital and labor saving. The decline in productivity was caused largely by the protection afforded by high tariffs on imported paper products and other policies, which allowed inefficient, small plants to enter the market and flourish. Will these trends continue into the future, particularly where energy use is concerned? We examine the current changes in structure and energy efficiency undergoing in the sector. Our analysis shows that with liberalization of the sector, and tighter environmental controls, the industry is moving towards higher efficiency and productivity. However, the analysis also shows as these improvements are being hampered by significant financial and other barriers the industry might have a long way to go.