 "Slim revival chances for 2 PSUs on closure list")
Two public-sector companies the Centre wants to shut are emblematic of the Chakravyuha Challenge, an analogy used by the Economic Survey to highlight the challenges of closing down inefficient, loss-making firms.
On Tuesday, the Centre announced it would close down loss-making public sector companies Hindustan Cables, Asansol, and the Kota unit of Instrumentation Limited.
Hindustan Cables continues to be in operation despite becoming a sick company in November 2002. The Board for Industrial and Financial Reconstruction is still examining the prospects of reviving the firm.
In 2013-14, the company reported zero sales, while its total debt burden stood at a whopping Rs 5,159 crore. While the company has classified Rs 2,642 crore of debt as secured, the amount should be "reclassified into unsecured", according to a report of independent auditors, because all production units of the company have remained closed or unmaintained for 10 years.
Hindustan Cables had already defaulted on repayment of dues to financial institutions, banks and debenture holders and bond holders of Rs 2,769 crore as of end-2013-14. It had reported fixed assets worth Rs 28 crore in its balance sheets. But, as these have remained unused and unmaintained for around a decade, the auditors viewed these as "defunct and technically non-usable, which is tantamount to retirement from active life". Further, its auditors noted that the company's moveable assets had become "redundant" and "unusable", the trade receivables were "unconfirmed" and inventories were largely in the "form of scrap", rendering the firm almost worthless.
In 2013-14, its only income source was from selling scrap and income from other sources through which it garnered a mere Rs 3 crore. With no sales, the company had provided only Rs 1.74 crore to the national exchequer by way of taxes and fees. This was largely on account of taxes on salaries and wages and other taxes paid by the company.
The drain on the exchequer due to rigid labour laws was best highlighted by the fact that despite zero sales, the firm continued to employ 1,698 workers, paying them Rs 112 crore as remuneration and benefits. This accounted for nearly 23 per cent of the total expenditure it incurred in 2013-14.
While it was proposed to give voluntary retirement to the employees, the burden on the exchequer would be much higher, as the company had not made any provision with respect to wage and salary arrears arising out of the pay revision, in effect from 1997.
The government might also have to deal with inadequate provisions. According to the independent auditors, long-term loans and advances of Rs 16 crore remained "unconfirmed" and unrealised for a long period with a slim chance of recovery. Similarly, long-term trade receivables of Rs 173 crore "remained unconfirmed, disputed and unrealised for a long period with a remote" chance of a change in the situation. The company had made some provisions for both these. But, the auditors reckoned these were inadequate and more provisions were required.
The second company, the Instrumentation Limited unit is also in financial trouble. Its annual loss before tax rose from Rs 68 crore in 2013-14 to Rs 141 crore in 2014-15. The company's net sales declined from Rs 183 crore in 2011-12 to Rs 159 crore in 2014-15 and its debt burden soared from Rs 174 crore to Rs 266 crore in the same period, complicating the debt service challenge.
The company's employee cost had risen from Rs 68 crore in 2011-12 to Rs 76 crore in 2014-15, representing 29 per cent of its total expenditure. The company has 1,677 workers.
