• The jute sector plays a crucial role in the Indian economy, particularly in Eastern India, by providing direct  and indirect employment opportunities and generating export revenue. India is the world’s largest producer  of jute, which is also known as golden fibre, followed by Bangladesh, and exports make up approximately  15% of jute production. 
  • Despite a slight reduction in pent-up demand in FY23, the export of jute products is expected to continue  growing by 12%-15%. Key players in the industry have been able to maintain healthy operating margins by  investing in modern looms and product diversification, while a majority of the mills still use obsolete and  labour-intensive plant and machinery, which hampers the quality and quantity of production. 
  • The jute industry is grappling with shrinking acreage, excessive dependence on government orders,  competition from Bangladesh, and a lack of modernization and diversification. Additionally, the industry has  been influenced by government policies in key areas over the years. 
  • Recently, significant capacity additions have been announced by large players in both traditional and value added jute products. 

West Bengal – The Heart of Jute Production 

West Bengal tops the chart in total raw jute production in India with a share of around 81%-82% followed by  Assam (8%) and Bihar (8%). Other jute producing states are Andhra Pradesh, Madhya Pradesh, Chhattisgarh,  Odisha, Meghalaya, Tripura and Nagaland.  

Shrinking Acreage and Production 

The area under jute and mesta cultivation has been declining in recent years, with 6.9 lakh hectares in FY23  compared to 8.4 lakh hectares in FY14. As a result, jute and mesta production decreased from 116.9 lakh bales in  FY14 to 101.5 lakh bales in FY22, with mesta contributing to less than 5% of total production. However, there has  been a slight improvement in yield per hectare. 

The production is estimated to be around 100.5 lakh bales for FY23, according to the second advance estimates.

There are about 95 jute mills in the country, out of which about 75 are currently operational. Majority of the mills  are located in the state of West Bengal along the banks of river Hooghly. The size of the industry is Rs.12,000 crore with majority offtake by Government for packaging of food grains. 

Dependence on Government orders and policy frameworks 

The jute industry in India is subject to high levels of government regulation, particularly in key areas such as the  determination of minimum support prices (MSP) for jute crops, fixation of jute bag prices, and offtake. The  government sets the MSP for raw jute based on recommendations from the Commission for Agricultural Costs and  Prices (CACP). On March 24, 2023, the government increased the MSP for raw jute for Jute Year 2023-2024 (July 

June) by Rs. 300 per quintal to Rs. 5,050 per quintal to boost farmers’ revenue and address the issue of shrinking  acreage. 

Manufacturers are reliant on the government to determine the pricing of jute bags (in cases of supply to government  institutions), based on the Tariff Commission of 2001’s price formula. The regulatory nature of the industry does  not allow for pricing driven by demand and supply. 

The Jute Corporation of India Ltd (JCI), a Central Public Sector Enterprise under the Ministry of Textile, acts as a  price-stabilizing agency and undertakes the procurement and sale of raw jute under MSP operations. The  government also provides subsidies to JCI for its market operations. 

The Jute Packaging Material (Compulsory use in Packaging Commodities) Act (JPMA), 1987 mandates the use of  jute bags for 100% of food grains and 20% of sugar for Jute Year 2022-2023 (July-June). As a result, the jute  industry is heavily reliant on government food grain procuring agencies such as the Food Corporation of India and  State Procurement Agencies, which account for around 65%-70% of total jute goods production. While most mills  focus on fulfilling assured government orders, a few large, modernized mills export their products and venture into  value-added Jute Diversified Products (JDPs). 

Modernisation and Diversification – The Way Forward  

The Indian Jute sector heavily relies on government demand for food grain packaging, resulting in JDPs constituting  only a small portion of the total jute consumption. However, with further investments, innovations and expertise,  this segment could expand rapidly. Additionally, the industry is grappling with the issue of obsolete and labour intensive plant and machinery, leading to a reduction in both the quality and quantity of production. 

Mills equipped with modernised facilities and diversified product offerings have better margins compared to those  with older machinery. The operating margin of top mills ranged from 10% to 14%, while the industry average was  5.5%-7.5% during FY20-FY22. CareEdge Ratings expects the industry margin to remain range-bound between 5%- 7%. 

Large players have recently announced significant capacity additions both in traditional and value-added jute  products. The Government has also announced the PLI scheme for the production of JDPs and the Amended  Technology Upgradation Fund Scheme (A-TUFS) for the upgradation of existing machinery and installing modern  looms. Investment in technology upgradation and product diversification is the need of the industry. 

Healthy Export Growth to Sustain  

The overall export of jute products has seen traction over FY16-FY22 witnessing a compounded average growth  rate of 12% from Rs.1,892 crore in FY16 to Rs.3,786 crore in FY22 driven by both volume and price increase. Some  of the growth in FY22 was also pent-up demand post the covid impact in FY21. Nevertheless, the export is expected  to continue the growth trajectory of 12%-15%, despite minor fizzing of pent-up demand in FY23.  

Historically, hessian has been a major contributor to overall jute export. 40%-50% of the hessian production is  exported, which increased to 75% in FY22. The export of sacking bags almost doubled from Rs.308 crore in FY16  to Rs.641 crore in FY22 and that of jute shopping bags also grew from Rs.322 crore to Rs.820 crore during the  period. 

The industry faces severe competition from Bangladesh on account of relatively better quality of raw jute, lower  wages and substantial government assistance in terms of subsidy. Consequently, India’s proportion of global output  has been gradually declining even though its net export value is rising. 

The ESG Appeal of the Golden Fibre  

Jute fibre is eco-friendly as it is fully bio-degradable and recyclable. It’s strength, versatility and highly spinnable  appeal, is likely to attract more attention of the user industries in the long-term due to concerns over usage of  synthetic products. With increasing awareness about the adverse effect of synthetic packaging material to the  environment, the demand of jute goods is poised to grow both domestically and internationally. Demand for  environmentally friendly products augurs well for value-added JDPs like woven and non-woven jute geotextile, jute  agro-textile, jute blended fibre yarn, river embankments, and lifestyle products like floor covering, jute shopping  bags, apparels. 

CareEdge Ratings’ View 

“The potential for jute diversification is promising, offering environmentally friendly solutions in many sectors’ value  chains. With increasing awareness about the adverse effect of synthetic material on the environment, the demand  for jute goods is poised to grow both domestically and internationally. The urgent industry requirement is to  modernise, adopt new industry standards and technologies, and progress through time. Indian jute export is well  poised to witness a growth trajectory of 12%-15% from FY24, despite global uncertainties. While the industry  margin is expected to remain rangebound between 5%-7%, the panacea for improvement lies in modernisation 

and diversification so as to meet the Hon’ble Prime Minister’s 5F (from Farm to Fibre to Factory to Fashion to  Foreign) Vision,” said Priti Agarwal, Senior Director at CareEdge Ratings.