Banning plastics is necessary, but here’s what that might cost India

This World Environment Day the United Nations had only one directive - reject single-use plastic. Hosted by India, the internet was in an uproar to #BeatPlasticPollution and to reduce humanity’s over-reliance on disposable plastic.

It may be the need of the hour, but there’s a sizable economic cost attached to it as well that seems to be getting sidelined in the name of environment preservation.

Banning plastic is definitely a boon for the environment. For starters, it reduces the amount of non-biodegradable litter that clogs up storm drains and piles up in landfills. Even the ocean has islands that are made of solid waste that consist mostly of plastic garbage.

Indirectly, since disposable plastics are derived from crude oil refining, when their manufacturing reduces, it also reduces the contribution of polypropylene to climate change.

But then, there’s flip-side to a ban. Businesses that manufacture disposable plastic, firms using plastics for packaging and even the consumer - all have to bear the cost. The burden of a ban isn’t just limited to the plastics industry. Horizontal and vertical dependants like the petroleum industry, food delivery outlets and even the road-side juice vendor will feel the impact.

In India, Sikkim was the first state to implement a ban on plastic bags in 1996. It was also one of the first states to apply a ban on single-use plastics. The state’s been fairly successful in its implementation considering that there’s a very limited space for garbage dumps within their territory.

But then again, that’s not always the case. States like Andhra Pradesh and Madhya Pradesh that have significant plastic waste generation have only been marginally successful in implementing partial bans.

Taking the most recent case of the plastic ban in Maharashtra, the All India Plastics Manufacturers’ Association (AIPLMA) claims that while this initiative may help the environment, it will also result in a loss of up to ₹15 billion ($220 million) and nearly 300,000 jobs.

The snowball effect

One assumes that the direct effect of banning plastic use is that plastic wastage decreases, but the reality is broader than that. Plastics is an industry of its own that makes a significant contribution to key sectors in India like textiles and healthcare. That being said, one sector that will be hit the hardest by the plastic ban is the packaging sector.

1. Job loss

So, it’s a fairly straightforward correlation that when there’s unemployment in one sector then the supply of labour will increase. In this case, it will affect polymer manufacturers, plastic processors and recycling players. Especially those that work in extrusion, which would include the manufacture of plastic bags and blow moulding which is how bottles and containers are made.
It should be noted that the plastics industry is highly labour intensive and largely unorganised. In Maharashtra, specifically, AIPMA claims that the ban will result in the shut down of 2,150 industrial units.

In India, there’s already a surplus of low wage labourers, which will be further impacted by such a move. The extent of the impact will be determined by the skill set and specialisation that distills into the market.

2. Gross Domestic Product (GDP) will be affected

As of 2017, the Indian plastic industry contributes around 7.1% to the country’s GDP. It’s also complementary to the petrochemical industry that works in tandem. But, the ban itself hits the ‘end user market’ where plastic products are primarily used for domestic purposes.

Additionally, the packaging industry is one of the key drivers of demand for plastics. It’s one the fastest growing industries with a compound annual growth rate (CAGR) of 15% over the last five years.

It has received major impetus from retail growth, changes in lifestyle, and growth of smaller packaging. The implementation of a strict ban would be a fairly large obstacle for the plastics industry to compensate.

In Maharashtra itself, the plastics industry is fairly big. In fact, plastics contribute to around 35% of the state’s GDP with a turnover of ₹50,000 crore. It’s also one of the reasons why the state contributes to nearly one-third of India’s plastic waste. Placing a ban on plastic use will retract the demand for plastics overall, thus leading to decreased sales and decreased revenue.

As a result, whatever stocks of single-use plastics are left with manufacturers of plastic products, and companies that use them, will basically be a sunk cost after 23 June, as per the government directive.

AIPMA estimates that the banned products would results in a loss of up to ₹15 billion.

3. Bad loans in the banking sector will increase

As the demand for plastics falls, assuming the ban is implemented effectively, a lot of micro, small and medium units (MSMEs) in the plastics industry, could default on loans and the proportion of bad loans could increase.

This is especially true as one analyses the downstream supply chain of plastics. While polymer manufacturing is dominated by large industrial groups, plastic processors and recycling players are largely MSMEs.

4. Fines on small and micro retailers will affect their P&L statements

As with any new law or directive, there’s an implementation curve. There will always be a few defaulters who won’t comply immediately, and the heavy fines could send their profit and loss (P&L) statements for a spin. Large corporations won’t feel the pinch of a ₹5,000, ₹10,000 or ₹25,000 fine, but roadside vendors, food vendors and delivery kitchens have to be wary. Some vendors have reported that they’ve had to temporarily stall their services as they come up alternative methods of packaging.

5. Cost of going green to consumers

More than the plastics sector, industries that depend on plastic for packaging will have to find alternative green methods of presenting their commodities in the market. Nonetheless, there’s evidence to support the fact that firms generally pass on this cost onto their consumers where they can purchase a paper/reusable bag at nominal rates.

There’s the crux of the issue. More than the repercussions of the plastic ban, what matters is how the ban is embraced by the public. The use of paper bags is only effective if they are reused, otherwise the problem shifts from plastic pollution to deforestation. And, if climate change is the primary concern, banning plastics might not even necessarily be the right solution.