All gone down the black hole

Record of sick PSUs: Rs 1,500 cr govt package, Rs 5,231 cr loss.

The United Progressive Alliance government is drawing up plans to revive seven sick public sector undertakings: Hindustan Cables, Richardson & Cruddas, Hindustan Photofilms, Triveni Structurals, Tungabhadra Steel Products, Bharat Opthalmic Glass and National Instruments.

The Union heavy industry ministry has estimated that the cost of reviving the first five companies will be Rs 2,000 crore. Once the packages for Bharat Opthalmic Glass and National Instruments are also worked out, the final cost to the exchequer is going to be much higher.

Several people within the government, however, are asking if the investment is worth incurring. The government can close the units at a fraction of the cost and cut its losses. More important, the companies in question have already received financial assistance of over Rs 1,000 crore and their debt of over Rs 500 crore has been waived in the last decade.

But the efforts have come to nought. Taxpayers' money used in reviving these units has vanished into a black hole. By the end of 2003-04, the seven companies had a negative net worth of Rs 4,461 crore and their accumulated losses had added up to Rs 5,231 crore.

Hindustan Cables, for instance, has been given more than Rs 500 crore as fund-based assistance over the last 12 years. But the situation has turned steadily from bad to worse. The company is deep in the red with losses of Rs 1,425 crore on its books. It has been digging into its working capital and is, therefore, unable to execute orders. From over Rs 1,000 crore in 2001-02, the company's order book had shrunk to Rs 300 crore in 2003-04.

But now the government is planning to once again pump a large sum of money into the company. The new revival package for Hindustan Cables carries a price tag of Rs 1,350 crore, according to the State Bank of India, the consultant appointed by the ministry.

To be sure, some of these companies are faced with problems that cannot be dealt with by any financial package. Take, Hindustan Photofilms, for instance. Technological obsolescence of the hardware and rapid developments in systems control and digitisation, entry of global information technology giants into photoimaging and diagnostics have reduced the company to a non-existent player in the market. To compound its misery, the import duty on photofilms has been cut from 250 per cent in 1991 to 20 per cent now.

As a result, the market has been captured totally by multinationals like Fuji, Kodak and Konica.

Though more than Rs 300 crore have been spent in the last 10 years to rehabilitate the company, it has run up accumulated losses of Rs 2,711 crore.

The chances of the company recovering lost ground are really slim, experts say. With or without a revival package.