No left turns

While the government continues to be non-committal on the nature of the inquiry that it is ordering into the privatisation of the two Centaur hotels in Mumbai, the Comptroller and Auditor General’s (CAG’s) report on the subject has come as a shot in the arm of the Left parties, who are against any form of privatisation.

What may or may not be a problem with a particular case has already, in the minds of many, become an argument against the whole category.

Whether the Prime Minister and the finance minister realise it or not, in effect they have shut the door on the privatisation of even the most non-performing state-owned enterprises during the life of this government.

Instead, the country could well see a rush of revival plans for ailing state enterprises, despite the fact that over Rs 40,000 crore of revival packages over the past couple of decades has not resulted in any significant reduction in the number of sick state enterprises; indeed the number has gone up from 100 to 107 over the past five years.

Ironically, the most powerful argument against revival schemes is that given by the same CAG which has picked holes in the processes followed for the sale of the two Centaurs.

The CAG’s latest report on state enterprises has a chapter on the implementation of HMT’s “one time, last time” turnaround plan that was okayed in August 2000, and shows that none of the performance parameters has been achieved, including the promised Rs 180 crore from the divestment of subsidiaries and the closure of unviable units that had been incurring losses for over 11 years in a row, as also of units manufacturing dated mechanical watches.

In the event, while the turnaround plan projected sales of Rs 1,316 crore for 1999-00, the actual sales were Rs 752 crore in that year and fell to Rs 384 crore in 2003-04.

The company’s sundry debtors were supposed to fall to 96 days but rose to 123 in 2003-04; and the stock of raw materials rose to 173 days in 2003-04, against the target of 96 days.

Similar stories abound for almost each state enterprise that has been “revived”.

UPA leaders, and those from the Left parties, argue however that what matters is the overall profitability of the sector, which is said to rival the figure for private sector companies.

In 2003-04, for instance, the operating profits of centrally-owned enterprises were 8.7 per cent of gross sales, compared to 8.4 per cent for the private sector.

For the year before, the figures were 9.1 and 7.6 per cent, respectively. But this hides more than it reveals—specifically, the role of profits earned by the state-owned oil companies, which are artificially boosted by the fact that they are de facto monopolists functioning in a controlled market that is further distorted by high protective tariffs.

Take this away, and the profitability of the non-oil state sector falls by a third, so that their average falls to much lower than the profitability of private firms.

As for the argument that protecting state enterprises is about protecting employment, it’s worth keeping in mind that employment in the public sector manufacturing companies fell from 1.8 million in 1991 to 1.6 million in 1998, a period in which there was no real privatisation in the manner talked of today; and now the employment number is down further to 1.3 million (out of a total labour force of 363 million).

The jobs created by these companies also suffer in comparison with the million plus jobs created in the IT/ITeS sector over the past decade.

And so, irrespective of the truth of the Centaur sales, the government should ensure that the idea of privatisation does not get buried.