Wednesday, 20 September 2017

India’s loss-making PSUs.

Source - airplace-pictures.net

As India eyes precious capital from foreign and domestic lenders, loss-making PSUs are now seen as a black dot for Ministry of Finance. The government plans to raise thousands of crores of rupees from bustling stock markets. Public Sector Units like Cochin Shipyard has tried their luck in the bullish Bombay Stock Exchange and has been successfully oversubscribed. Next on foray are NHAI, IRCTC, IRCON and RITES, the organisations related to surface transport. Arun Jaitley, India’s finance ministry and ex-defence minister said that organisations related to Ministry of Defence namely Mazgoan Dock Limited and Mishra Dhatu Nigam Ltd will be also lined up for divestments by the end of the year. The man on the divestment mission has been displeased by continuous loss making CPSEs. Naming Air India and ITDC, Jaitley made headlines saying, "Why should the government be in the business of hotels? Why is Air India making losses when new players like Indigo and Spice Jet are in the green?".

MoS for Heavy Industries and Public Enterprises, Babul Supriyo, said in the Lok Sabha reply that “the reasons for losses in CPSEs vary from enterprise to enterprise. However, some common problems for losses in CPSEs include old and obsolete plant and machinery, outdated technology, low capacity utilisation, excess manpower, weak marketing strategies, stiff competition, heavy interest burden, high input cost, resource crunch etc.” The accumulated losses of sick public-sector enterprises as of March 31, 2014, stood at Rs 1.04 lakh crore. This essentially means that the government of India has pumped a lot of money into these companies over the years to keep them going. Here’s the list of top loss-making PSUs in random order.

Hindustan Organic Chemicals Ltd.

Hindustan Organic Chemicals Limited(HOC) was set up by the Government of India in 1960 with an objective of attaining self-reliance in basic organic chemicals needs. In fact, this was the first endeavour to an indigenise manufacture of basic chemicals and to reduce country’s dependence on import of vital organic chemicals. HOC started as a small chemical unit, has today acquired the status of a multiunit company with two fast-growing units and one subsidiary unit. As private chemical industry picks pace, government organisation like HOC failed to cope up.

HOC’s fiscal loss for 2015-16 stands at Rs.173 crores. The company also made a loss of Rs. 215 crores and Rs. 176 crores in the year 2014-15 and 2013-14 respectively. The company has been declared as sick by Board of Financial Reconstruction in 2015.

Fertilizers and Chemicals (Travancore) Ltd.

Fertilizers and Chemicals Travancore Limited (FACT), a Government of India Enterprise established in 1943 has business interests in manufacturing and marketing of fertilizers, caprolactam, engineering consultancy and fabrication of equipments. Units of FACT include the two manufacturing divisions in Udyogamandal, Kerala and Wellington Island, Kochi. The Company has also interests in petrochemicals, hydrometallurgy, chemicals and pharmaceuticals.

The company’s audited financial results report an accumulated loss of Rs. 2143 crores in 2016-17 and its net worth has been fully eroded. The company has been continuously making losses of thousands of crores. Such brutal financial condition raises questions on the existence of material uncertainty and arises significant doubts on company’s ability to continue.

Indian Drug and Pharmaceuticals Ltd.

IDPL is the largest CPSE in India with plants at Rishikesh, Gurgaon & Hyderabad and two Subsidiary Units at Chennai, Muzaffarpur and Gurgaon. Established in 1961, IDPL played a major role in the strategic National Health Programmes like Family Welfare Programme & Population Control (Mala-D & Mala-N) anti-malarials (Chloroquine) and prevention of dehydration (ORS) by providing quality medicines. During the country’s calamity of an outbreak of Plague in 1994, IDPL was the only company which played the sheet anchor role in supplying Tetracycline for the entire Nation. Similarly, the company had made an uninterrupted supply of Chloroquine to combat Malaria epidemic in different parts of the country. In 2005 to combat national emergency (leptospirosis) arising due to flood in Mumbai, IDPL had supplied required Doxycycline Caps. within no time.

IDPL’s loss in 2015-16, 2014-15, and 2014-14 respectively – Rs 166 crore, Rs. 167 crores and Rs. 176 crores.

Air India Limited & Subsidiaries

Air India needs no introduction. The Maharaja of airlines is a national flag carrier and the airline with the membership of the prestigious Star Alliance. Air India is today serving to all major airports in India along with 60 international locations. Air India operates like a PSUs in the business which is marked by operational efficiency. Crews member and employees of Air India ltd. are relatively paid more than major low-cost airlines. Air India also use big planes when compared with low-cost airlines, loosing out of cost-conscious passengers. 

India’s aviation industry has more serious issues. Air fuel is expensive, the major airports are overloaded and the trains provide a cheap & convenient alternative pushing down the prices. There are way too many employees after the Indian Airlines-Air India merger and the government is reluctant to downsize. Around the world, there about 120 staff for every aircraft. Air India has 256. These extra people and salaries are a huge drain. While Jet airways spend only 10% of its revenues on salaries & benefits, Air India spends 20%. And the menace of corruption, CBI report also slams Air India regarding irregularities in the leasing of 111 aircrafts.

Air India and its subsidiary reported a loss of Rs. 4441 crores in the financial year 2015-16. Cabinet committee on the recommendations of NITI Aayog has given an in-priniciple approval for considering strategic divestment of Air India and five other subsidiaries. To reduce the loss, the government is selling high valued properties owned by Air India in plush areas of Mumbai, Delhi and other Tier 1 cities. Tata, Indigo and international players like Singapore Airlines have shown interest in Air India divestment. The government may need to amend rules for international bidders.

PEC Ltd

PEC Ltd (formerly – The Project and Equipment Corporation of India Ltd.) was carved out of the STC in 1971-72 to take over the canalized business of STC’s (State Trading Corporation of India Ltd.) railway equipment division, to diversify into turn-key projects especially outside India and to aid and assist in the promotion of exports of Indian engineering equipment. PEC Ltd reported a loss of Rs. 1142 crores in 2015-16.

To Be Continued in Part II.

Links – commerce.gov.in, data.gov.in,  hocl.gov.in, fact.co.in, idplindia.com, peclimited.com.

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