You can absolutely grade a paper pattern manually, but you probably wouldn’t want to.
Manual grading with pencil, paper, and a grading ruler is time-consuming and tedious work. Unless your patterns are simple rectangles, the manual grading process requires lots of precise measurements and line/curve drawing. It is less precise and harder to check and adjust as you go.
Digital grading, while not as easy as a click of a button, is much quicker. You can save and apply grade rules without drawing out each pattern separately. It is easy to precisely measure your graded sizes to make sure they match up perfectly. The time you save by not having to draw every size of every pattern piece is a huge advantage.
Even if your base pattern is on paper and you need the final graded patterns on paper too, digital grading is usually the cheapest and easiest method. Digitizing the pattern, grading it digitally, and then printing it back out is still faster than manually grading each size on paper.