In today’s Finshots, we talk about the newspaper industry’s battle against customs duty and why it wants the government to waive the tax.
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The Story
When was the last time you picked up a newspaper? And no, we’re not talking about an e-paper, but a physical one.
If your answer was “this morning” because reading the paper is part of your daily routine, then you’re probably one of the 35% of Indians who reads a physical newspaper everyday. Well actually, that figure is from the Indian Readership Survey (IRS) which dates back to 2019. And it suggests that the percentage of people reading a daily newspaper has been slowly dropping. For context, in 2017 37% of Indians read a newspaper everyday.
Thanks to the rise of digital media such as smartphones, social media has become everyone’s favourite method to access news on the go. But it’s not just the rise of digital news that’s killing newspaper readership.
Publishers believe that the government is hurting the industry too.
How’s that, you ask?
In 2019, the government reintroduced a customs duty or import tax on all foreign made newsprint which enjoyed an exemption for nearly a decade. And since then, publishers have been pursuing the government to roll back its decision.
But with the customs duty still in place, the tussle is now harder. Publishers’ arguments are simple.
The pandemic hit their already declining businesses. Domestic newsprint manufacturers were either forced to shut shop or switch to making packing paper. And lockdowns and blocked supply chains globally meant that publishers couldn’t import printing paper either. Costs nearly doubled.
On top of that, revenues nosedived because people stopped buying newspapers and magazines fearing them to be virus carriers.
Even after everyone started hopping back to business, sales failed to go up. And by FY22 the combined profits of some newspaper groups including HT Media (Hindustan Times) and Bennett Coleman & Co. (Times Group) had dropped by nearly 25% from their pre pandemic figures.
And just when they were ready to shift gears, the Russia-Ukraine war came swooping in.
You see, India doesn’t produce enough publishing paper. It consumes about 2.5 million tonnes of newsprint a year. But domestic mills are only able to produce about 1 million tonnes. And the Indian Newspaper Society, the country’s central Press organisation, believes that even that isn’t as good as the imported variety in terms of quality.
So we end up depending mostly on Russia for close to half of our newsprint imports. And since many countries in the West severed their trade ties with it, global shipping companies weren’t supplying enough newsprint again. Newsprint almost vanished from the Indian market!
Not just that. Newspaper milling requires a significant amount of power. And Russia is the world’s largest fossil fuel exporter. But in preparation for Ukraine’s invasion, it began limiting supply to countries like those in the EU (European Union), who are heavily dependent on it. That led to a rise in coal and natural gas prices, hurting countries like India that relied on coal for their power needs. And since power costs contribute to about 30% of the newsprint production overheads, the newspaper industry was doomed.
So yeah, things began to look bad. And dealing with another cost in the form of a newsprint tax on foreign paper was simply unacceptable for the publisher folks. Their input costs rose. And passing it on to readers meant that buyers of the physical newspaper dropped.
Seems like valid reasons for the government to take heed, no?
Actually, it did. In 2020, the Finance Minister Nirmala Sitharaman made it a point to announce in her Budget speech that ever since customs duty on print media had made a comeback, she’d been receiving a lot of representations about it becoming an additional burden to the industry. So the government actually decided to halve the tax to 5%.
But since then it has refused to budge to give away any further concessions. Because here’s the twist.
Customs duty on imported newsprint actually protects domestic newsprint manufacturers.
You see, the absence of customs duty on newsprint imports meant that many countries like Australia, Canada, Singapore and the EU were conveniently dumping newsprint to poor as well as developing economies including India. Even when the demand for imports dropped, newsprint continued flowing in from these countries simply because they were cheap.
And the end result was that domestic newsprint manufacturers lost their market share to such dumped imports. To put things in perspective, between 2016 and 2019, dumped imports had increased their market share from 37% to 48%. This meant that the domestic players weren’t getting enough orders to operate at their full capacities. Working capital dried up. Losses widened. Many employees had to be laid off. Nearly half of them were forced to pull down the shutters on their businesses too.
So this customs duty was necessary to revive them.
But that’s not the only reason. Costs are now stabilising for the publishing industry. Newsprint costs which account for about 45% of the production overheads, have come down to more reasonable levels now. And a recent FICCI-EY report has highlighted that advertising in print media is expected to grow at about 4% every year until 2026, causing a parallel bump in industry revenues.
Besides, the government won’t want to lose out on an opportunity to cash in on whatever revenues it gets from customs duty on newsprint imports.
And that might mean that the newspaper industry may be stuck in an endless struggle against increasing its profit margins.
Or will it succeed in convincing the government another time? We’ll only have to wait and see.
Until then…
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