Shut it down

Now that the National Textile Corporation (NTC) has earned Rs 1,800 crore or so from the sale of mill land (and a lot more is forthcoming), it has become relatively easy for the government to agree to put in more money into its revival.

And so a group of ministers headed by Agricultural Minister Sharad Pawar has okayed a proposal to merge all seven NTC subsidiaries, modernise 22 mills and revive another 18 through a joint venture with the private sector.

After giving voluntary separation to 50,000 employees and closing 65 irretrievably loss-making mills, NTC now has 52 mills and 28,000 workers.

To that extent, NTC does look a better proposition today, and the post-MFA textile boom does help. The fact, however, is that NTC mills have never been known for their quality, and are well behind their private sector counterparts in most respects, whether in terms of the price the fabric commands in the market or the cost of such production.

The Public Enterprises Survey of 2002-03, for instance, shows that the wage component of production costs for NTC ranges from 20 per cent in the case of NTC Andhra, Kerala, and Karnataka to 40 per cent in the case of NTC Maharashtra, 63 per cent in the case of NTC Gujarat and 70 per cent in the case of NTC Uttar Pradesh.

In comparison, for the private sector, this varies between 5 and 7 per cent.

Admittedly, the problem is less acute in the southern NTC units, but here too, the numbers don't look that good. Net losses for even the best NTC mills (in Andhra, Karnataka and Kerala) were Rs 139 crore in 2002-03 as compared to profits of Rs 37 crore in the year before that.

In the case of NTC Gujarat, losses have increased nearly four-fold, from Rs 61 crore in 2001-02 to Rs 240 crore in 2002-03; for NTC South Maharashtra the losses doubled from Rs 75 crore to Rs 153 crore; from Rs 170 crore to Rs 250 crore for North Maharashtra; and for NTC Uttar Pradesh they rose from Rs 79 crore to Rs 330 crore.

Even if NTC's losses are written off, as is the practice in revival schemes, NTC's wage costs are way too high. These will obviously come down once new machinery is bought and work processes modernised, but surely that cannot happen with the existing management practices and labour force? If that was at all possible, NTC wouldn't have been in the position it is in today.

Schemes have also been prepared to get money from other businesses to subsidise the post-restructured NTC. One proposal, for instance, is to develop a gems & jewellery centre on some of the land in Mumbai, as well as build business centres, hotels, and malls.

The core issue is whether NTC can make profits from its current business and not whether its financial investments will be lucrative enough to cover core losses.

If the answer to the first question is no, as it appears to be, the best proposition is to shut the mills and use the money obtained from the sale of land elsewhere, perhaps to augment the flow of funds to other textile units through the textile upgrade and other funds.