November 11, 2019

How Can MSMEs and Regulatory Agencies Phase-Out Plastics from Packaging?

How Can MSMEs and Regulatory Agencies Phase-Out Plastics from Packaging?

Can MSMEs in India reimagine business without plastics? The challenges posed by the use of plastics in packaging calls for a crystal clear identification of the scope of the challenge, analysis of the plastic economy and its environmental impacts. It is also prudent to take a look at India’s current standing and approach towards resolving the challenge posed by plastics in the backdrop of global trends as diverse stakeholder groups including MSMEs and regulatory agencies continue to engage in dialogue and explore opportunities to find a sustainable solution.

MSMEs in India and the Plastic Conundrum: Untangling the Linkages

On June 25, 2019, the Report of the Expert Committee on Micro, Small and Medium Enterprises submitted by the Reserve Bank of India acknowledged the ban on plastics across diverse states as one of the major reasons that had led to a large number of MSMEs becoming non-performing assets (NPAs). The report further took cognizance of the societal and environmental purposes served by such bans but cautioned about “collateral damage’ to the economic health of the MSME sector.

What is the Economic Impact of Plastic Ban on the MSME Sector and Its Customers

Estimates assert that are 50,000 plastic manufacturing units in India with an overwhelming 90% of these being MSMEs. MSMEs that are engaged in the production and distribution of plastic materials employ 3-4 lakh people while catering to the requirements of a wide diversity of industries including FMCG, FMCD, automotive and infrastructure among others. A major driver of the demand for plastics in these industry verticals is packaging.

Why is Plastic So Important to these Industry Verticals for Packaging?

The heavy reliance of diverse industry verticals on plastics for packaging is not limited to the Indian economy per se.  First, data published in a World Economic Forum study suggests that globally packaging is one of the largest drivers of demand for plastics.

Table 1: Re-usage Rates by Materials Comparative Analysis

Second, plastic is the preferred material for industries in the modern economy. Ever since the production of the first synthetic plastic in 1907, Bakelite, global plastic production has been on the rise. In the last 65 years, the annual production of plastics has increased nearly 200-fold to 381 million tonnes. This is estimated to be equivalent to the mass of two-thirds of the world population. Two of the major reasons behind the surge in demand for plastic are reuse and recycling. Plastic can be reused and recycled, albeit a limited number of times.

Table 2: Y-o-Y Growth in Plastic Production 1950-2015

Third, plastics are derived from petroleum refining and therefore indexing the cost of plastic production to crude oil prices. Given the markup pricing that is used to determine the costs of plastic,  the softening of crude oil price in the last five years owing to large volumes of shale oil production has provided a comfortable cushion to plastic manufacturers and further enabled them to pass on the benefits to diverse industry verticals, where plastic is in demand.

Why Does Single-Use Plastic in Packaging Pose a Challenge in the Indian Scenario?

India generates close to 26,000 tonnes of plastic waste every day. It is estimated that single-use plastic constitutes 43% of the quantum of plastic that goes into packaging. Single-use plastic by implicit meaning is used only once before being disposed of. However, a crystal clear definition of single-use plastic is yet to see daylight. A committee under the Ministry of Environment, Forest and Climate Change is working on finalizing an unambiguous definition of single-use plastic. The remaining 60% of all plastic is recycled in informal and unstructured plastic manufacturing MSMEs that produce very low-quality recycled plastic. Recycled plastic can be mixed with virgin material to produce high-grade plastic products.

How MSMEs and Regulatory Agencies Can Collaborate to Phase-Out Plastics from Packaging?

Data published by the World Bank asserts that India generates plastic waste in the range of 2.5 million to 5 million tonnes. In view of the current proportions of the challenge that India is faced with, it makes enormous good sense to suggest that MSMEs need to engage with regulatory agencies through a time-bound and outcome-based framework. Given that India has a consumption-driven economy, it shall be great to opt for a gradualist approach to enable MSMEs a cushion to absorb the economic impacts. A corporate income tax holiday to businesses offering sustainable packaging solutions can enable holistic ecosystem-wide reform by reducing the cost burden and further allowing such businesses to pass-on the benefit downstream.

How Moglix Business is Partnering with Customers to Offer Sustainable Packaging Solutions?

At Moglix Business, we are collaborating with our customers from a diverse cross-section of industry verticals to enable a seamless transition from single-use plastic packaging materials to sustainable packaging materials that are economically viable. We offer a complete suite of packaging solutions that includes primary, secondary and tertiary packaging. As a responsible business, we take cognizance of the need to be cost-efficient and set quality standards and to allow our customers to hit the ground running. As such, our packaging solutions are aimed at reducing the cost impact of the transition from 300% to 2.5%, thus allowing for the eventual phasing-out of plastics from packaging.