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West Bengal government has perfected the art of taking over and running no-hope private sector duds. A look at what this practice entails. By M.V.Ramakrishnan In the preceding article in this column (October 6, 2000), we had noted the travails of Hindustan Photo Films, a Central Government undertaking which has become completely unviable and lost its reason to exist. There are other such companies under the Central Government, but extreme dilapidation of this kind is more conspicuous in the State public sectors. Not only have State Governments allowed many of the undertakings established by themselves with vital objectives to decline and drag along, but some of them have a way of acquiring sick companies from the private sector---with the declared intention of reviving them for saving the jobs of the workers--- and then letting them get into still deeper ruts. The West Bengal government has cultivated this practice as a fine art since the early 70's, and has so far acquired 20 such companies, many of which are on the verge of collapse but kept artificially alive. In his latest commercial audit report on West Bengal, the Comptroller and Auditor General of India (CAG) has shown the financial status of all these 20 companies, 18 of which have been accumulating huge losses (See table: Cumulative Losses). Two of them are public utilities---tramways and gas supply--- but the others have no such claim for public interest. The CAG has also reviewed the performance of some of these units in detail, and the picture he paints is a dark one. A few years ago he had reviewed the affairs of some other companies in this sick list. It will be useful to recall those cases here before coming to the recent report, for that will reveal a generic trend. Workless And Worthless The cases studied in the mid-90's are the following: Britannia Engineering Products and Services: The State Government had taken over this sick private company with about 1,000 workers. Its original objectives had been to produce road-rollers, tractors, earth-moving machinery, concrete mixers, and machine tools; but the actual business was restricted to road-rollers, tea, and jute processing machines and castings. After the take-over, the company's affairs had steadily declined further, with a cumulative loss of Rs 9 crore in 1993. Production had fallen in 1992-93 to 31 road-rollers (annual capacity: 250), 20 tea/jute processors (capacity: 150), and less than 100 tonnes of castings (capacity: 3,600 tonnes). There were still about 1,000 workers, most of them without any work. (It is reported by a reliable source that no road-rollers were produced in 1999-2000). National Iron and Steel Company: This had been taken over by the Government with about 800 workers. Its business was smelting, casting, rolling steel and scrapping ships. The company had piled up losses of Rs 26 crore by 1993. Against an annual capacity of 10,000 tonnes of steel ingots, the melting shop was producing only 900 to 2,900 tonnes. The rolling mills had gone completely to the seed: only 25 tonnes were rolled in 1992-93 (capacity: 60,000 tonnes), in just three working days that year! The foundry fared better, for it managed to work 49 days during the year and produced 124 tonnes of castings (capacity: 3,600 tonnes). Neo Pipes and Tubes Company: Another extremely sick unit in the private sector, set up mainly to produce steel pipes, tubes, rods, etc., and also boilers and furnaces. Things became steadily worse after the Government took over the company, and its cumulative loss in 1993 was Rs 16 crore. Production during 1994-95 was only 85 tonnes of bars, rods, flats, and tubes (capacity: 3,600 tonnes), with a workforce of 120. (The output was 65 tonnes in 1999-2000). Shalimar Works: The Government had acquired this ailing company with about 500 workers. Its business was to build inland vessels like boats, barges, dredgers, and trawlers, acquire and maintain shipyards, jetties and lighthouses, and repair ships. The company incurred a progressive loss of Rs 14 crore by 1994. Its physical performance was dismal; but somehow it managed to secure orders for vessels from public bodies like port trusts and maritime boards, and went on defaulting deliveries. In 1993-94, the foundry produced all of 27 tonnes of castings (capacity: 15,600 tonnes). Although the above four companies had become workless and worthless during the 80's, they are all still limping along today---having doubled their progressive losses from Rs. 65 crore to Rs. 130 crore (See table: Cumulative Losses). Since their accounts are heavily in arrears, the actual figure would be even higher. These huge losses, incurred mainly on wages and salaries of idle workers, were invariably met by obtaining liberal loans from the State Government, which were (and will be) never returned.
Wrecks And Relics Now let us take a look at the cases figuring in the CAG's present audit report: Carter Pooler Engineering Company: This private concern manufacturing fork-lift trucks had become unviable in the 60's and was closed down in 1968. The Central Government had revived it in 1972 and entrusted the management to Garden Reach in Calcutta. But things only got worse, and the company was liquidated in 1983. Then the State Government stepped in, bought the assets in 1987 and revived the unit once again, with about 350 workers. But the business was in a shambles. The capacity was 120 fork-lifts per annum, but only 25 (in all, not per annum) could be produced during the next 12 years. The progressive loss was shown as Rs. 15 crore in 1998, and production of fork-lift trucks in 1999-2000 is reported to have been nil. Engel India Machines and Tools: This company was set up in the private sector in 1962 to produce machines for making plastic goods, in collaboration with Engel Ludwig KG of Austria. It became unviable due to mismanagement and labour unrest, and was wound up in 1973. The State Government revived the company in 1975, but things went from bad to worse. The foreign connection could not be renewed, though its memory survives in the name of the company. Against the existing annual capacity of 96 moulding machines, only 74 in all could be produced during 11 years up to 1998-99. The cumulative loss was Rs. 21 crore in 1998, and production of moulding machines in 1999-2000 is reported to have been zero. Krishna Silicate and Glass: This labour-intensive private company producing glass and glassware with semi-automatic machinery had become terminally ill in the 60's and was liquidated in 1970. The Central Government revived it in 1973 with about 1,000 workers and entrusted the management to the State Government. Since then the company went steeply downhill, carrying a cumulative loss of Rs 21 crore in 1998. Against an annual capacity of 16,000 tonnes of glass and bottles, production fell to about 1,300 tonnes in 1991-92, and in the past nine years it has been zero. IPP Limited: The Indian Paper and Pulp Company, set up in 1918, had been a profitable business till the mid-60's, but then declined steadily due to shortage of raw materials like bamboo and hardwood. It was taken over by the Hindustan Paper Corporation in 1976, but became unviable and was closed down in 1979. It was revived by the West Bengal Industrial Development Corporation in 1981, and became an independent company under the State Government in 1985 (with a shortened name: IPP Limited). Things had started looking brighter in the early 80's, but afterwards the company took a deep dive, and its production was down to 300 tonnes in 1998-99 (capacity: 23,000 tonnes). The cumulative loss was Rs. 50 crore in 1998, and production in 1999-2000 was just nine tonnes. Arbitrary approach The following consistent impressions emerge from the CAG's past and current audit reports:
Well, eight out of 18 cases is a large sampling, and what is true of the companies figuring in these reviews is also likely to be true of many others.
Wages Of Salvage The West Bengal Government projects this very expensive policy as a mission, justifying it in terms of protecting the employees of the acquired companies from unemployment. But a large number of industrial units in the private sector tend to fall by the roadside, often being driven to that condition by the mistakes or mischief of entrepreneurs. About 100 such units were closed down in West Bengal during 1960-66, and there must have been hundreds of others in the past. Except for the public utilities, what satisfactory criteria could the Government have adopted, to avoid the stigma of arbitrariness? Naturally, the number of workers in the acquired companies would only be a small fraction of the total number of workers thus affected in the State. The cost of continuing their idle employment is enormous (See table: Cost of Staff). Assuming that the two public utilities---tramways and gas supply---may need special consideration, there are about 7,000 workers in the other 16 companies listed (line B + C + D), directly costing the exchequer Rs 58 crore per annum now, or an average of Rs 83,000 per employee. Looking at it from another angle, the cumulative losses of these 16 companies (as far as can be seen from their last finalised accounts, some of which date back several years) amount to Rs 470 crore, or an average of Rs 6.7 lakh per surviving employee (See table: Cumulative Losses). And this figure is bound to go on increasing. Moreover, is it credible that hundreds of employees would be assembling in each idle factory every 'working' day for years without having any work to do at all? Is it not more likely that many of them have other jobs and turn up only on pay-day to collect their wages? One cannot help wondering whether the Government really believes that such massive recurring expenditure is justified on this account. Indeed, it seems far more likely that the declared objective is only a facade, and one must look elsewhere for the true reasons. It may not serve any useful purpose to speculate on this mystery, but one can surely say that the cost of closing down these crumbling units and paying some reasonable compensation to the workers will be far less than the long-term cost of allowing this awful mess to continue indefinitely. |
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