ITI revival hinges on harsh steps

The Rs 1,000-crore package that the government is working on for the revival of Indian Telephone Industries (ITI) will not have the desired impact unless it is followed up by certain key decisions that are very political in nature, according to sources familiar with the public sector telecom equipment manufacturer, which was once a national mainstay.

The staff strength, which is currently down to 14,700 from its historical peak of 32,000, has to go down further to 9,000 by 2007 for the company to become viable. That is why the Rs 558 core sought for voluntary retirement scheme (VRS) expenditure incurred and planned constitutes the most important element of the package.

But the trouble is that the response to the current VRS offer has been poor compared to the earlier one and the offer has been extended till the month-end. Sources attribute this to the current political atmosphere, with a Congress government at the Centre supported by the Left.

The previous VRS had many takers as then there was a fear that the company might not survive. It is also imperative that the total number of factories, down to six with the closure of the one at the Electronics City near Bangalore, be brought down further.

But politics has also got in here in a big way with as many as three factories "" Rae Bareily, Naini and Mankapur "" being located in politically-significant Uttar Pradesh and Rae Bareli being the constituency of Congress President Sonia Gandhi.

Those arguing in favour of saving the company say that it has already done a lot to restructure and reinvent itself and has already laid the foundations of a return to viability.

What it needs is sufficient orders (around 30-40 per cent of their total procurement) from Bharat Sanchar Nigam Ltd and Mahanagar Telephone Nigam Ltd. For this, it is not looking for a price preference. ITI is willing to match the lowest rates tendered.

What it needs is a minimum annual topline of Rs 2,500-2,600 crore to keep overheads at manageable levels.

They also argue that it is necessary for the country to retain some degree of manufacturing capability in telecom in order not to have to face foreign suppliers' cartels.

They recall that irrespective of how many lines of CDoT equipment actually installed, the capability that National Advisory Council member Sam Pitroda and his boys had established played a significant role in crashing prices of foreign equipment.

These sources claim that ITI can become viable as it has technologically transformed itself in the last couple of years by accessing new technology for mobile infrastructure and IP switches.

Global System for Mobiles (GSM) technology has come from Alcatel of France and Code Division Multiple Access (CDMA) technology has come from ZET of China.

Technology for new generation IP-based switches has come from Tekelec of the US. As one source asserts, "There is life after CDoT; this year ITI will be selling less than 200,000 fixed line switches, compared to 3.8 million at its peak." The revival package totalling Rs 1,000 crore was submitted to the government 16 months ago.

The Rs 508 crore Finance Minister P Chidambaram had mentioned in his Budget speech was a part of it, just enough to keep the company out of the purview of Board of Industrial and Financial Reconstruction.

The company has accumulated losses of Rs 1,048 crore up to 2003-04, when it made a loss of Rs 706 crore on a turnover of Rs 1,263 crore. As on March 31, 2004, shareholders' funds were at a negative Rs 841 crore.

The true picture

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• Staff strength, which is currently down to 14,700 from its peak of 32,000 has to go down further to 9,000 by 2007
• Response to current VRS poor as staff see hope of revival in Congress regime
• Total number of factories, down by one to six have to be brought down further
• What ITI needs is a minimum annual top line of Rs 2,500-2,600 crore to keep overheads to manageable levels