Down the drain

The headline numbers would probably gladden the hearts of the United Progressive Alliance (UPA) leaders and encourage them to come up with more revival schemes for public sector undertakings (PSU). According to the Comptroller and Auditor General’s (CAG’s) latest report on PSUs, the number of loss-making units has fallen from 121 in 2003-04 to 101 in 2004-05 and the total loss incurred by these companies has also fallen, from Rs 11,979 crore to Rs 9,688 crore. Indeed, overall profits for all centrally-owned PSUs and statutory corporations more than doubled between 2002-03 and 2004-05 while sales rose a third, making the profit-to-sales ratio rise from 5.8 per cent to 9.0 per cent during this period. The good news, however, stops here. For one, 40 per cent of the profits were from the oil sector. To protect the jobs of around 1.3 million people employed in manufacturing PSUs (of the total workforce of around 400 million), the government pumped in Rs 16,100 crore of fresh equity between 2002-03 and 2004-05, offered another Rs 11,000 crore of fresh loans, wrote off Rs 5,500 crore of dues and provided fresh guarantees worth Rs 46,000 crore. This was in addition to Rs 85,000 crore of subsidies related to administered prices, though it is not clear how much of this was subsidy to the PSUs and how much to the consumers. With so much money spent, and the PSUs not even getting revived, it is clear that the drain has reached serious proportions.

The point, made many times before, is that most of the PSUs simply cannot be revived, even though, thanks to the massive hike in equity values (even after the crash) and land prices, it appears some of the revival can be achieved at a relatively low cost. In the case of NTC, for instance, the sale of surplus mill lands would probably finance much of the revival. But until something is done to drastically reduce NTC’s labour costs, any revival package will only be that much more down the drain. In 2002-03, for instance, NTC’s labour costs ranged from 20 per cent of turnover for the mills in Andhra Pradesh, Kerala and Karnataka, to 40 per cent in the case of Maharashtra and 70 per cent for Uttar Pradesh. For most private sector mills, labour costs as a percentage of turnover range from 5 to 7 per cent! In the case of HMT, another CAG report points out that none of the performance parameters in the turnaround plan in 2000 was achieved. While the turnaround plan projected HMT’s sales at Rs 1,316 crore for 1999-00, the actual sales were Rs 752 crore in that year, and plummeted steadily thereafter, to Rs 200 crore in 2004-05.

Apart from the issue of labour retrenchment, the other issue is that of managerial interference, where, no matter what status the government may confer upon PSUs, there is virtually no change over the years. While the refusal to allow oil firms to hike prices is well-known, what is less talked of is the 50 per cent quota for SC/ST/OBCs in the total number of dealerships that oil firms can set up on their own. The twists and the turns in the extension to ONGC chief Subir Raha’s tenure is just the latest episode in this story—the government is well within its rights not to grant Mr Raha an extension, but surely a successor for him could have been found before his tenure came to an end.