After putting off sale, govt wants to revive it, again
Putting off the strategic sale of the sick Scooters India Limited (SIL) in the light of the Uttar Pradesh election was perhaps understandable—after moving a resolution in Parliament on inducting a strategic partner into SIL, the PMO had this withdrawn last year—but now, even after the UP elections are over, the government is moving a Cabinet note to revive the PSU on its own. And this is when, after examining it, the Board for Reconstruction of Public Sector Enterprises (BRPSE) had pointed out “unless a strategic partner was selected to operate the company it was not possible for the company to turnaround due to technology and skill gap … Alternatively the company has to be closed down.” The BRPSE said this in 2010 after SIL made its way back to the sick bay after having revived briefly following a government revival package in 1996. Indeed, given SIL’s capacity of a mere 16,000 units, and the lack of any R&D or marketing muscle, finding a strategic partner was the best solution—ironically, the Samajwadi Party government in UP has been in favour of a strategic sale and feels the fact that Mahindra & Mahindra has shown interest could help push UP’s industrial fortunes.
Nor is the government’s reluctance to privatise restricted to just SIL. While 40 PSUs have been ‘revived’ at a cost of R43,934 crore since 2004, only 11 of them have posted profits consecutively in FY07, FY08 and FY09. Several PSUs like HMT, Hindustan Antibiotics and Hindustan Salts have been ‘revived’ in the past, only to fall sick again. Not surprising then that non-plan expenditure on loans given to PSUs like Hindustan Shipyard, HMT, SIL, Hindustan Cables, National Jute Manufacturers Corp for payment of salaries or restructuring of debt increased to R6,551 crore in 2010-11 from R3,383 crore in 2009-10. In most cases, as CMIE data show, the problem lies in the huge overstaffing of PSUs. Compare the top 145-odd PSUs with private firms and you see, for FY11, they have roughly similar sales—R14.6 lakh crore for the PSUs versus R13.6 lakh crore for the non-PSUs, but the PSUs have 8,29,000 employees versus 6,21,000 for the private firms; while the average PSU employee earned R1,54,000, the average private firm paid a lower R1,16,000—as a proportion of expenses, PSUs paid 7.24% for employee compensation versus 4.19% for the private firms. So while the PAT per employee was R1,40,156 in FY11 for the PSUs, it was R2,38,178 for the non-PSUs.
The PMO’s note directing the department of heavy industry to put up a Cabinet note on SIL’s revival—the Cabinet is expected to clear the proposal soon—it must be pointed out, was written before the PM took over as finance minister. So now that the PM has indicated he plans to kickstart reforms and come up with measures to reassure investors and revive animal spirits, perhaps the proposal will be withdrawn? It’ll be difficult to convince investors the government is pro-reform while it continues to waste hundreds of crore of rupees reviving terminally-dead PSUs.