Though paper manufacturers are striving hard to remain afloat, a few small units have already shut down due to the rising costs.

Representatives of paper manufacturing units of Gujarat, Maharashtra and other southern states recently met and decided to increase the paper prices to get out of the crisis. The price rise may offset only a part of the loss being incurred and it is yet to be seen whether the paper industry can survive, traders say.

"If loss-making continues, manufacturers will resort to another price hike in October 1998," a leading manufacturer said.

Domestic paper consumption is growing at a snail's pace compared with international markets. In the past 15years, small paper mills (having annual production capacity below 33,000 MT) have captured major chunk of industrial papers market.

There are more than 500 such units in the country manufacturing various grades of paper but most of them produce kraft, duplex board and newsprint. Last year the government slashed import duty on finished paper to 20 per cent from 40 per cent.

This encouraged imports as finished goods at home turned a costly affair. Domestic manufacturers, mainly from the small and medium scale, had to compete with the international giants. This prompted a price war among domestic manufacturers and as a result paper prices in the last year have been slashed by 25 per cent, but the rise in costs of raw materials, fuel and power hit profits of these manufacturers, leaving them with no option but hike rates.

The recent annual budget announced last month hiked the import duty on waste paper, which is the major factor contributing to the overall manufacturing cost. Additional levy ofnon-Modvatable duty of four per cent has proved to be a deathblow to the Indian paper industry, traders say.