Business Today Net Special

It's end of the road for the terminally-sick Hindustan Photo Films, says a CAG report. But is the government up to doing the right thing?

To be or not to be? That's the question being faced by many public sector enterprises, particularly those under the state governments and to some extent at the Centre. All of these have tall (and sometimes even noble) objectives, and are meant to make vital contributions to the nation's progress and welfare. But in reality they have proved to be hopelessly inefficient, unable to cope with changing market conditions, and steadily declining to a point where their existence has become quite pointless.

We are not talking about the need for disinvestment in these cases, because the operations have become so unviable that there will be no buyers to take up any government offer to disinvest. The companies are being choked by the excruciating burden of a huge work force which has no work to do, and by enormous and ever-increasing loans they can never return. Invariably, their problems are referred to the Bureau of Industrial and Financial Reconstruction (BIFR), which as a rule recommends their rehabilitation through some over-optimistic 'revival package'.

This usually consists of pumping more and more money as 'fresh capital' into the business by the Government or the financial institutions, writing-off substantial loans and outstanding interest dues, launching half-hearted voluntary retirement schemes---and hoping for a miracle to happen, which of course never happens. And, thus, one sees the constant spectacle of terminally sick companies limping lamely on and never getting terminated.

Rarely does the BIFR recommend the outright closure of a government undertaking, but it has done so in the case of the Hindustan Photo Films Manufacturing Company (HPF), a Central Government company located in Uthagamandalam---known as Ootacamund during the British regime, and even now popularly called Ooty---nestling among the eucalyptus trees in a large tract of government land in the Nilgiris or Blue Mountains of Tamil Nadu.

The Bureau had asked the Government of India to comment on its suggestion by the end of August, 2000, perhaps knowing well that no such draconian decision was likely to be taken in this regard. The Government is bound to ask the Board to reconsider the whole issue and find some miracle cure. For this kind of institutional cancer never kills, but only keeps the patient permanently dying.

HPF was established by the Central Government in 1960, with the praiseworthy objective of achieving self-sufficiency in the field of photographic products, such as photo, cine and x-ray films, photographic paper, and other related products. In 1991-92, it was decided to divest 20 per cent of the equity to mutual funds and financial institutions. As of now, the Government holds 90 per cent of the equity (worth Rs. 175 crore). The remaining 10 per cent (Rs. 19 crore) is held by the General Insurance Company and its subsidiaries.

The company was set up with manufacturing facilities for black-and-white photo films, and medical/industrial x-ray films with cellulose tri-acetate (CTA) base. Later on, it undertook a project for making polyester-based x-ray films in collaboration with Du Pont of USA, and also experimented with diversification into automatic photo-dispensing units and magnetic tapes and retailing imported colour film.

During the 80s, HPF was earning modest profits of about Rs. 7 or 8 crore per annum, on sales which ranged from Rs 120 crore to Rs 225 crore in value. But in the last decade of the century, there was a steep decline in sales, which fell from Rs 238 crore in 1991-92 to Rs 21 crore in 1996-97. In the next couple of years, it rose slightly to Rs 35 crore, but fell further to Rs 28 crore in 1999-2000.

The table Sales And Losses shows this disastrous trend. The information is taken from an audit review made by the Comptroller and Auditor General of India in 1998, and from HPF's own published annual reports. The provisional figures for 1999-2000 have been obtained from the company.

The annual losses naturally rose correspondingly. From 1997-98 the cumulative loss has been colossal, mainly because of steeply mounting interest on borrowed funds. Last year, the figure exceeded Rs 1,100 crore.

Sales and Loss Report
	Sales	Profit/Loss	Cumulative loss
1989-90	185	8	NA
1990-91	225	2	NA
1991-92	238	3	NA
1992-93	175	-117	101
1993-94	92	-58	159
1994-95	54	-57	216
1995-96	41	-71	287
1996-97	21	-95	382
1997-98	35	-176	558
1998-99	34	-310	868
1999-2000	28	-275	1,143
Figures in Rs crore

(a) its inability to develop products for colour photography, when colour has killed black-and-white just as the audio-tape had killed the gramophone record; and

(b) its endless travails in the process of changing over from CTA base to polyester base for X-ray films, in spite of foreign collaboration. These shortcomings have made it impossible for the company to meet the stiff competition offered by foreign firms in the liberalised economic climate of the Nineties. As is well known, the photographic industry of the world is dominated by just a few transnational companies: Kodak, Fuji, Konica, Agfa-Gavaert, and Ilford. In theory, the Government could think of inviting competitive bids from such foreigners to take over HPF's assets and develop the industry in this country along sound lines. But who will want to acquire a losing concern which has more than 2,000 idle workers on its rolls? Even HPF's desperate efforts to find a joint venture partner within India have failed miserably.

The CAG had declared in its 1998, Audit Review: "...the wisdom of continuance of the Government with the company needs to be examined..." And now the BIFR has come to the same conclusion. So what will the Government do? Agree with the Bureau and close the company down? Or just go on pumping more and more public fund into the drain, or let the financial institutions do likewise?