When closure is a better option

While the government is working on a Rs 2,000 crore (Rs 20 billion) revival package for the seven sick PSUs, it has a more cost-effective option to deal with the problem: close the units.

Consider this: the rehabilitation of Richardson & Cruddas, Triveni Structurals Ltd and Tungabhadra Steel Products Ltd is estimated to cost Rs 600 crore (Rs 6 billion); the closure of these three companies, by the government's own estimate, can be achieved for just Rs 80 crore (Rs 800 million).

There is a view within the government that this option should indeed be pursued. In the last decade, the government has already sunk around Rs 1,500 crore (Rs 15 billion) in trying to revive the seven companies. But the companies have only gone deeper into the red.

With no guarantee that the new packages will work, closure of these units, senior officials argue, is the best was to ensure there is no further drain on the government's resources.

Industry experts too say that companies should be closed when it is certain that no revival package is going to work. "In case the company is sponging money, it must be closed down without putting in any further money," said S M Diwan, director general of the Standing Committee on Public Enterprises.

And there is soon going to be a mechanism in place for closure of such bleeding public sector units. The Board for Reconstruction of Public Sector Enterprises, which will be constituted shortly, will be mandated to recommend closure of companies, where a revival package is unlikely to work.

It is worth noting that the Board for Industrial and Financial Reconstruction has already recommended closure of four of these companies: Hindustan Photofils Ltd, National Instruments Ltd, Bharat Ophthalmic Glass Ltd and Triveni Structurals Ltd. But the board's recommendations have not been carried out because of several reasons including the lack of political will on the part of the government.

Take the case of Triveni Structurals Ltd. In June 2003, BIFR had recommended that the company be closed. In the past, three revival packages for the company had failed.

Its order book position had dwindled from Rs 30 crore (Rs 300 million) in 2001-02 to less than Rs one crore (Rs 10 million) in 2003-04. But the timing was bad. The National Democratic Alliance government was getting into the election mode and it was thought best not to go ahead with the BIFR recommendation.

The government is now planning to pump as much as Rs 300 crore (Rs 3 billion) to revive the company. It can be closed for as little as Rs 30 crore (Rs 30 billion).

Some experts feel that with the United Progressive Alliance government depending heavily on the Communist parties for support, the closure option will not be pursued vigorously.