The good news is the Union cabinet has approved a hefty financialrestructuring plan for the Steel Authority of India Ltd (SAIL) which shouldhelp turn its fortunes around in the next two years. The bad news is it hastaken far too long to announce a decision: 18 months of restructuring wastedtime and crores of avoidable losses. What it proves is that the reformprocess has not yet touched the topmost levels of government. Although itwas more or less certain approval would be granted in the end, financialmarkets were not prepared to act on that expectation and SAIL's managementwas unable to go ahead with its plans. Had the government not dwaddled overthe matter, very likely SAIL would have been out of the red this year andready to make the most of the opportunity presented by the current renewalof demand for steel at home and abroad.SAIL's management and the markets are expressing high confidence about itsprospects as well they might. Financial costs to the company will be lower:a saving of up to Rs 500 crore annually on interest charges as a result of aRs 5,400 crore loan waiver and lower borrowing rates thanks to a governmentguarantee for loans up to Rs 3,000 crore. Profitability has improved afterrecent hikes in the prices of steel products. And steel demand is pickingup. Longer term it is essential to raise productivity and this is seen ascoming through three processes: a reduction of the workforce through thevoluntary retirement scheme, shedding non-core businesses, and technologicalupgradation in the integrated steel plants. The age of public sectorexpansionism is gone and it makes sense to sell off the Salem steel plant,the Visvesvaraya iron and steel plant and the Rourkela fertiliser plant.That will raise money and free the company to concentrate on its essentialbusiness. Whether Rourkela, Durgapur and Bokaro can actually afford to getrid of their captive power plants remains to be seen. There are better waysof safeguarding the fresh infusion of public funds in SAIL than burdening itwith a supervisory committee of secretaries. Managements are not known toachieve peaks of efficiency when powerful bureaucrats breathe down theirnecks. Set benchmarks for performance and let SAIL's management do itsjob.It is important to ask why the rescue package was delayed so long. Eitherthere were political considerations; or a lack of confidence in the levelsat which the restructuring plan would have been officially vetted, in thenormal course, before it went up to cabinet; or simply too much on thecabinet's plate. More efficiency and speed are required in arriving atdecisions concerning the ``navratnas'', a small number of large publicsector corporations in core sectors. There is nothing wrong with theintention to support them and build them into world class organisations.The fault lies in the method. The government sadly lacks a roadmap foreffective disinvestment. The world may be undergoing a revolution in ways ofdoing business but the government carries on as before, profligate with timeand money, grandly indifferent to the demands of the market. Public sectorreform surely involves the reform of state enterprises and crucially alsothe reform of government thinking and practices.
