This is with reference to T N Ninan’s column, ‘Do a garage sale’ (Business Standard, 11 June, 2011). I agree with some aspects of Mr Ninan’s piece. There is no case in the present economic context for the government to be in tyres, shoes, paper, newsprint, bicycles, scooters or watches, which form the bulk of the quarter of the 48 PSEs under the department of heavy industries (DHI) that have ceased operations or are closed.
However, there are PSEs in priority sectors, such as Indian Drugs and Pharmaceuticals Ltd. and Instrumentation Ltd., that have large amounts of excess land or townships which can be sold or leased to generate substantial resources to possibly revive them, as was done with the 103 ‘sick’ textiles mills. Incidentally, most people have forgotten the history of these mills. Indira Gandhi had to nationalise them in 1973 to save the jobs of seven lakh employees after the mills had been sucked financially dry by their private sector owners.
But now, take the other side of the coin: the Heavy Engineering Corporation (HEC), Ranchi, set up in 1960 to manufacture heavy capital equipment for the steel, coal, power and defence sectors in technical collaboration with the former USSR, Czechoslovakia, Germany and Japan. HEC was, and is even today, our largest integrated engineering complex. Its foundry forge, heavy machine building and heavy machine tool plants are capable of designing and making a whole array of equipment for those industries. Since 1965,HEC has manufactured and sold half a million metric tons of equipment to the steel plants alone. However, due to technical, commercial, HR and management problems, in its first 47 years, the company made profits in only three years. Consequently, the BIFR recommended its closure in 2004. However, the UPA-1 government took a positive attitude and closure was avoided. In 2005, DHI referred HEC’s revival plan to the Board for Reconstruction of Public Enterprises.
The plan covered simultaneous action on many fronts but involved a new investment of only Rs 90 crores! Meanwhile, in May 2006, the government appointed a new CEO with a strong mechanical engineering background. He went about the revival with great dedication and vigor, so that starting 2006-07— just two years after the pre-revival year of 2004-05 — HEC made modest profits. Thereafter, it never looked back. Its production and sales have grown at an annual average rate of 30 per cent, and it has made profits in each of the last five years without a break. HEC’s turnover and profit in 2010-11 were Rs 685 crores and Rs 38 crores respectively, compared to Rs 160 crores and a loss of Rs 285 crores in 2004-05.
Particularly significantly, its order book position has climbed steeply to Rs 2,350 crores in March 2011. With this remarkable performance, HEC has targeted a turnover of Rs 1,000 crores in 2011-12, rising to Rs 1,700 crores in 2013-14, with steeply rising profits in each year — targets which the DHI and the finance ministry are convinced it can achieve. HEC has undertaken not only many projects for the steel, coal and power sectors, but also major hi-tech projects for defence, Isro and atomic energy, including for the nuclear submarine which no other company in the country can design and produce. So, a sustained turnaround involving 30 per cent CAGR and profits in only four to five years after 47 years of losses, can be achieved!
As for the Mining and Allied Machinery Corporation (MAMC) — referred to by Mr Ninan — it has been closed since 2001. Winding up was recommended and MAMC went to a liquidator appointed by the Calcutta High Court. At this stage a consortium of three PSEs — Coal India Ltd. (CIL), Damodar Valley Corporation (DVC) and Bharat Earth Movers Ltd (BEML) — acquired the fixed and movable assets of MAMC for Rs 100 crores. They did so after a detailed technical study of MAMC’s plant, which revealed that nearly 70 per cent of the machinery was in working condition.
CIL was interested in reviving MAMC, since it would get a captive source from which to meet its coal mining equipment needs, especially for its underground mines, most of which CIL was importing at high prices. DVC, which is in power generation in a big way, wanted a source from which to meet its requirements of coal and ash handling equipment. BEML was keen to set up a production base in the coal mining hub in the East. The three cash-rich PSEs, therefore, signed a pact for forming a joint venture to revive and develop MAMC. They prepared a detailed project report (DPR) which showed that techno-commercial revival was possible in three years. Based on the DPR, the three have agreed to make the necessary investments, place advance orders and start the revival work.
Similar has been the case of Bharat Pumps and Compressors, Triveni Structurals, Central Electronics Ltd., Electronics Corporation of India and even seven of the 10 subsidiary companies of the National Textile Corporation set up to deal with the 103 nationalised textile mills referred to earlier.
So, the government’s strategy should be to undertake such turnarounds of PSEs in strategic and nationally important areas (and where turnarounds would be feasible and profitable), and sell or close down PSEs in non-priority areas after paying due compensation to employees. We will then have a leaner, more efficient and profitable public sector capable of meeting the needs of the nation in areas in which the private sector cannot do the job, is not interested, or the nation needs countervailing capabilities to those in the private sector.
The author is a former Secretary to several scientific departments of the Government of India
