Let a hundred PSU Boards bloom

That the Board of Industrial and Financial Reconstruction has been meant to do precisely that; that among its mandates has been the revival of sick public sector units; that its dogged efforts have revived none of the PSUs — all glossed over. Of course, there have been problems with the BIFR. Like all such bodies, it became a clone of courts — with interminable hearings, with countless adjournments. But the real problem has been that no Government has had the gumption or the conviction to act on its advice. Having explored every option, the BIFR recommended the closure of 20-odd PSUs of the Central Government. But no one has been prepared to act on such recommendations.

Similarly, the Rs 40,000 crore spent in revival packages have not resuscitated the enterprises. Indeed, no one has done so much as keep track of what had been promised when the revival package was given and what has transpired in fact. Nor have any of the plans and strategies devised and announced by successive Ministers of Heavy Industries, and hailed by the acolytes.

And now a new Board. And that to cheers from the Left! Our proposal has been incorporated in the Budget. Our ideological commitment to the Public Sector has been honoured… And I am sure their example too will be followed.

The far-seeing, committed Govt

‘‘Closure of industrial units and the consequent loss of employment is a matter of great concern to the State Government,’’ we read in the CAG’s report about West Bengal for the year ending 31 March 1999. And so, as long ago as 1972, the Communist-led Government of West Bengal constituted the Industrial Reconstruction Department to exercise administrative control over State Public Sector Enterprises. The Government ‘‘assigned it (the Department) the task of nursing the nationalised sick units back to health along with the revival of closed and sick industries in the State in general.’’ In 1983, to doubly achieve revival and reconstruction, it supplemented the Department with a Standing Advisory Committee ‘‘for (i) scanning and recommending turn-around and rehabilitation schemes and (ii) for monitoring and overseeing financial operations to ensure operational viability of public enterprises.’’ In 1994, the CPI(M)-led Government announced yet another ‘‘historic initiative’’ — a ‘‘policy to revive the sick and closed private sector units through appropriate policy packages.’’

What happened in practice?

‘‘It was observed that no criteria were fixed by the Government in the selection of units to be taken over for rehabilitation,’’ begins the CAG. ‘‘Also no study regarding the viability of the unit had systematically been undertaken as a matter of course before taking over the same.’’ Up to March 1999, Government had taken over 20 sick or closed units.

When the CAG examined the matter, these units had been with the Government of West Bengal for periods ranging from 8 to 30 years. ‘‘Yet,’’ the CAG recorded, ‘‘no sustained efforts were made towards improvement in the performance of those units.’’ Indeed, all that had happened was that the Government had constituted yet another body, the Strategic Business Expert Group in 1998 — ‘‘for monitoring the performance of the enterprises, advising the Government in restructuring of the units, human resource development and for assisting the units in preparation of technical details in respect of diversification of products and their marketing.’’

Thus, three bodies — the Industrial Reconstruction Department, the Standing Advisory Committee, and the Strategic Business Expert Group. And over and above each of them, the undying commitment of the Left to the Public Sector.

The result?

‘‘From the financial results of taken over units,’’ records the CAG, ‘‘it would be seen that only two units, viz, Silpabarta Printing Press and Saraswaty Press Limited earned a profit aggregating Rs 1.34 crore during 1997-98, whereas the accumulated loss of 18 units on the basis of latest available accounts was Rs 703.78 crore as against the paid up capital of Rs 65.60 crore of these units.’’ A telling figure that — the accumulated losses of the companies, instead of being wiped out, had become more than ten times their paid up capital.

What expert handling!

Successive reports of the Comptroller and Auditor General track the fate of the firms. And the consequence of that ‘‘social commitment’’.

Reports up to 1998 contain details, unbelievable details about nine of these firms. They give us a glimpse into the work culture that was fomented in the name of that ‘‘social commitment’’, a work culture that drove investment out of Bengal, and made this richly endowed State one of the laggards. In this series I will confine myself to the more recent reports of the CAG — the ones after 1999.

The report for the year ending March 1999 furnished findings about four units: the Engel India Machines and Tools Ltd. — what a blow for the Revolution the selection of the name itself must have been, and what an inspiration to the workers in the enterprise; the Carter Pooler Engineering Co. Ltd.; Krishna Silicate and Glassworks Ltd.; and Indian Paper and Pulp Co. Ltd. The West Bengal Government had sunk Rs 121.67 crore in these units as of 31 March 1999.

Not space science

The first thing that strikes one is that the rehabilitation of none of these units would have required space-age expertise. The products they were meant to make were simple as can be. Engel India was to make machines to manufacture plastic goods — and for that too it had entered into — Engel forgive us — a foreign collaboration! Krishna Silicate was to manufacture glass and glassware. Carter Pooler was to manufacture forklift trucks. IPP, paper using bamboo and hardwood. And so on.

Nor is it just that none of these activities required space science. Neither is it only that none of these products required sub-micron precision. The point is that the management and workers in each of the companies were thoroughly conversant with the products and processes. After all, each of the firms was taken over. That is, what the firm in question had to do was what it had been doing for years, in some cases for decades.

Mismanagement, a ruinous work culture had brought them to bankruptcy. Here then was as pure a test as one could contrive in a laboratory. Would the work culture improve now that the Government — and not just any government, but the most ‘‘committed’’ of governments — had taken over the companies? Nor was it just that the Government was a ‘‘committed’’ one. In taking the companies over, the Government had announced that it was doing so out of its resolve not to allow jobs to be lost. It had announced that it would nurse the firms back to health. It had set up a special department to do so.

What happened in fact?

Crony Communism

‘‘Due to continuous loss and incessant labour unrest,’’ we learn from the CAG, Engel India was closed in 1972 and was wound up in 1973 — a reminder of what things had been brought to in the early 1970s in Bengal. The very ones who had brought affairs to that pass then took over the firm so as to revive it. It was reopened in 1975. Renewing collaboration with the Austrian firm that had originally supplied the know-how was considered ‘‘vital for revival of the unit,’’ the CAG reports, only to add, ‘‘But no steps were taken’’ to renew it. What is a firm here or there at the altar of Ideological Purity?

But, lo and behold, in 1981 the same Government engaged Batliboi and Co. — the advisers to many a capitalist house — to prepare a revival scheme. The prospect held out was modest but considered sufficient. The firm would manufacture 44 machines in the first year. This would rise to 90 machines by the fifth year.

Funds were given. Optimistic proclamations rent the air. In fact, as against the 235 machines that had been forecast would be manufactured in the first four years, only 94 could be produced.

Solution? The very one that many a capitalist thinks up! A new Company was floated in 1987, Engel India Machines and Tools, and the business was transferred to this new Company. Optimistic proclamations again rent the air.

‘‘After a long period of inaction,’’ reports the CAG, ‘‘the Company resumed negotiations with the collaborator for renewal of agreement.’’ This was in April 1992 — the seven years 1975 to 1992 an offering to Ideological Commitment. Discussions continued for four months. In August, the CAG tells us, the collaborator ‘‘backed out of the proposal due to reasons such as unhealthy industrial atmosphere, building and equipment being unsuitable for production, poor productivity of manpower and infrastructure and inadequate power supply’’ — the backing out surely confirmed the ideologues in their conviction, that they had been right all along, that foreign capital cannot be trusted.

But nor can bourgeois institutions like the CAG. For the CAG goes on to observe, ‘‘Audit observes that instead of taking any concrete steps to revive the Company, the State Government gave loan assistance of Rs 13.50 crore up to December 1998 towards payment of salaries and wages to the employees of the Company and Rs 1.80 crore towards repair and renovation of building and machineries.’’

The result was predictable: by 31 March 1998, the accumulated losses of the Company mounted to four thousand four hundred and ninety five per cent of its paid up capital! As against the installed capacity for producing 96 machines per year, the Company manufactured a total of 74 machines in ten years — from 1988/89 to 1998/99.

A revamp strategy was drawn up. It was acknowledged — ‘‘boldly’’, no doubt — that the technology of the Company had become obsolete. Furthermore, that updating it would necessarily take time. Therefore, in the meanwhile the Company should accept and execute job work. Under this ‘‘new strategy’’, in two years — 1997/98 and 1998/99, the Company executed job work of Rs 1.12 lakhs!

Infrastructure had to be brought up to par, it was acknowledged. To start with, the existing building and factory sheds had to be repaired, the government concluded. This insight broke out in 1986. ‘‘But no action was taken till July 1990,’’ says the CAG, and then too the decision was that ‘‘renovation of the buildings would be done in a phased manner.’’

And what ‘‘phased manner’’ means among these guardians of accountability becomes evident in the sentences that follow in the CAG’s report. The ‘‘first phase’’ of the work was awarded to Westinghouse Saxby Farmer Ltd. The firm was to complete the repairs at a cost of Rs 18.49 lakhs. The contract was awarded in September 1993. And the contract document stated that the work must be completed within four months from the date of the order. The work was actually completed in May 1997 — not four months but three years and eight months from the date of the order! And the firm was paid, not the stipulated Rs 18.49 lakhs, but Rs 39.68 lakhs!

The ‘‘second phase’’ of the work which, the CAG reports, was estimated to cost Rs 57.25 lakhs, was, to use the CAG’s exact words, ‘‘awarded to the same party for Rs 71.56 lakhs’’. This was done in October 1997. The order stated that the contractor must submit ‘‘a programme of work indicating completion time for each item separately within 10 days of receiving the order.’’ In fact, the contractor submitted the work programme only in April 1999 — that is, notes the CAG, ‘‘after a delay of more than one-and-a-half years for which the management took no action.’’ The ‘‘work’’, it turns out, was begun without the work programme! ‘‘Meanwhile,’’ records the CAG, ‘‘the consultant asked for enhancement of fee from two per cent to four per cent of the value of the work, on the ground that the fee of two per cent was unremunerative. The demand of the consultant was accepted by the Board involving an additional expenditure to the Company which could have been avoided if there had been no delay in completion.’’ Crony Communism?

‘‘Thus,’’ concludes the CAG, ‘‘renovation and repairs to the buildings and factory sheds, considered necessary since 1986, but taken up only in mid-1990 and characterised by delayed and incomplete implementation till date (June 1999) indicated the casual approach of the Management towards the revival of the unit.’’

So much for buildings and sheds. What about the machinery in the plant? It was evident at the very outset that machines would need to be repaired and reconditioned. The Company formally recorded this urgent requirement in May 1990, and approached the State Government for a capital fund of Rs 50 lakhs for this purpose. The Government gave it Rs 25 lakhs — incidentally, when any other Government gives an amount less than what a PSU has asked for, the Left shouts, ‘‘A deliberate conspiracy to help the private competitors by starving the PSU so that it becomes uncompetitive.’’ In any event, the Company got Rs 25 lakhs.

There were 35 machines that had to be repaired. In fact, the Company sent one lathe and one boring machine for repairs! ‘‘The repaired lathe was received back and put to use in May 1996,’’ records the CAG — that is, six years after repairs of 35 machines were declared to be imperative for the revival of the Company — only to add, ‘‘but it went out of order in January 1997 and remained unutilised till date (March 1999) due to nonrectification of defects.’’ The boring machine was not received back till 6 July 1998 — more than eight years after repairs and reconditioning were deemed imperative — and then too ‘‘it had some minor defects’’. The firm that had contracted to repair the machines received not just what had been stipulated in the original order but an extra 23 per cent!

‘‘Thus, the expenditure on repairs to the machines,’’ the CAG concludes with becoming delicacy, ‘‘proved unfruitful.’’

More consequential is the fact that the CAG notes next: ‘‘Repairs to the remaining machines were not taken up for which no reasons were on record and the unutilised balance of fund (Rs 18.40 lakh) was diverted to meet working capital needs.’’

The Company was ‘‘suffering from an acute shortage of funds,’’ the CAG notes, and yet it went on purchasing raw materials — components for assembling machines that the Company was supposedly manufacturing. By March 1999 it had accumulated stocks that would have sufficed for almost ten years’ consumption!

Once again, a ‘‘new strategy’’ was evolved. This time the revelation was, ‘‘Diversify’’. And so, swallowing their hatred of foreign collaborations, the CPI(M) allowed the management to enter into a collaboration agreement with a UK firm. Under this, Engel was to import 10 systems for manufacturing Thermoforming machines. The strategy was pure inspiration, for, as the CAG notes, ‘‘The Company did not undertake any market study to ascertain the marketability of the product coming out of the new venture.’’

‘‘The consignments reached between December 1986 and March 1987,’’ the CAG continues his narrative, ‘‘and were kept in a bonded warehouse.’’ Two years later, in February 1989, the Company took out six of the ten systems from the warehouse ‘‘but did not complete assembly as it could not procure any order for the machine.’’ ‘‘The remaining four systems were lying at the bonded warehouse for more than 10 years…’’ Incurring demurrage, warehousing charges, penal interest…

PART II

PART III