More than 23 years ago, on February 24, 1984 to be precise, the Union government decided to merge two nationalised companies -- Inchek Tyres and National Rubber Manufacturers. The new corporate entity, born as a result of the merger, was called the Tyre Corporation of India.
The company, it was claimed, became the only public sector undertaking in the country engaged in the manufacture of automotive tyres.
Last Friday, the Lok Sabha passed a bill that would allow the government to divest its stake in TCI and rope in a strategic partner. The purpose of the divestment and the sale of equity to a strategic partner is to ensure TCI's revival.
What happened between 1984 and 2007 is too well-known and predictable to be recounted here in detail. Suffice it to say that TCI met the same fate as many other nationalised companies. Lack of operational autonomy, inadequate capital investments to upgrade its facilities and a public sector work culture made sure that TCI failed to make any significant financial recovery.
In each of the last three years, for instance, TCI's net loss was more than its total turnover. By 2006-07, TCI's net worth had turned negative (minus Rs 638 crore or Rs 6.38 billion).
With 252 employees on its rolls and another 657 contract workers, its annual wage bill was over Rs 12 crore (Rs 120 million) last year. And the company's total turnover was only about Rs 36 crore (Rs 360 million). In 2004, the government did propose a revival package through financial restructuring so that it could return to the black. But instead of implementing the package, the government has gone ahead with the plan to divest its stake in TCI and bring in a strategic partner. Not surprisingly, this is being seen as privatisation through the backdoor.
A similar fate awaits Nepa Limited, which too is a public sector undertaking and has been ailing for some years. The UPA government has already introduced a bill in the Lok Sabha to divest its stake in the company and bring in a strategic partner. Nepa Limited was set up to produce newsprint, but it fell on bad days when newsprint imports were liberalised and it was not prepared to face competition.
Two points should be noted. One, most experts who have studied the operations and the finances of the two companies are of the view that finding a strategic partner for either of them would be extremely difficult.
The only thing attractive about the two companies is that they have valuable real estate, which the strategic partners might like to monetise once they are on board.
But there are doubts about the viability of the two companies on the strength of their existing operations. A more easy option, these experts feel, would be to wind up the two companies after announcing attractive voluntary retirement schemes for employees. The real estate available can then be offered to private sector promoters who are keen on setting up new projects.
The more interesting point to be noted is that TCI is in West Bengal and Nepa Limited is in Madhya Pradesh. Both the states are ruled by non-Congress parties -- the Left Front in the former and the Bharatiya Janata Party in the latter.
No protest notes have as yet been issued by either political group, in spite of the fact that workers in the two companies are unhappy about the divestment move as they know the entry of strategic partners would mean rationalisation of the existing workforce, leading to some retrenchment.
But the Left parties have not issued a single statement expressing their reservations -- or opposition -- about the divestment move. In fact, the bill on TCI has been passed by the Lok Sabha. And the bill on Nepa Mills too is likely to face no opposition in Parliament.
What do these developments mean for the future of public sector reforms? As noted in these columns last fortnight, divestment of government equity in several PSUs has gained momentum this year and the current year's proceeds would be close to Rs 5,000 crore (Rs 50 billion), compared to Rs 1,570 crore (Rs 15.70 billion) in the last two years.
And if all goes well, as the smooth passage of the TCI bill seems to suggest, the management control of two ailing PSUs will move into private hands. For those who still believe that divestment and privatisation of sick PSUs have come to a halt under the UPA regime, it is time to think again.
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