The turnaround’ saga of the Kerala PSUs is a classical illustration of how a committed government with political will can take strategic initiatives to revamp the SOEs. While The Government of India is moving ahead with the disinvestment proposals the general consensus is that the impact of the global melt-down has been the minimum on the Indian economy on account of our robust PSUs in the crucial sectors. Though there has been an overwhelming demand from the private sector to take over the ailing PSUs in Kerala, it was the Left Democratic Front government in Kerala that proved that with a firm political will even the loss making PSUs could be ‘turned around’ into profitable ventures.
Kerala has a unique position with largest network of PSUs. Altogether there are 114 PSUs in the State. Under the Industries Department there are 63 PSUs out of which, 17 were closed down for long periods, 5 were welfare corporations and 4 were developmental agencies. 37 companies are presently engaged in manufacturing activities. In 2005-06,majority of the PSUs were making losses. Only 12 out of 44 the then opertaing companies were making profits. These units together made a loss of Rs.69.64 crores.
All the nine sectors except Development and Infrastructure sector, which was mainly operating in the financial area, were making losses. The loss incurred by all the loss making units during that year was Rs.125.87 crores. From 2006-07 onwards the situation started changing. In 2006-07 there was a considerable leap both in the case of turnover and profit. The total turnover was Rs. 1763.74 crores against Rs. 1540.40 crores in the previous year and the total profit was Rs. 91.18 crores. The number of profit making companies increased to 24. In 2007-08, the number of profit making units was increased to 27 and the total profit was Rs. 80.30 crores. In 2008-09, in spite of global economic recession and corresponding shrink in demand, the companies presented extremely impressive results. Out of the 41companies, 28 companies became profitable. Total turnover was Rs. 2105.01 crores and total profit was Rs. 169.45 crores. There was an increase of 16 percent in the turnover and 111 percent increase in profit compared to previous year. In 2009-10, out of the 37 companies, 32 companies became profitable. The total turnover was Rs.2190.73 crores and the total profit was Rs.239.75 crores. The loss incurred by the five loss making units was only Rs. 6.45 crores. There was an increase of 4.07 percent in turnover and 41.48 percent in profit from the previous year. An amount of Rs. 340.57 crores was remitted to the exchequer as Commercial Taxes, Excise Duty and Electricity charges. 5850 new appointments were made in this sector during the last four years, out of which 1647 were in 2009-10.
REORGANISING THE MANAGEMENT
The weakest part of the PSUs was the totally unprofessional and unaccountable management.
Appointments of Chief Executives in these organisations were mainly on political considerations and their management expertise was never considered. In the case of second line management also there were severe gaps. There were two important issues before the Government; (a) attract management experts at the senior level and (b) improve the skills of the existing officers. In order to get experts at the top level the appointment system itself was changed. A selection board was constituted for this purpose and appointments were made through open advertisement and interview. Search Committees were also constituted to identify experts of various sectors and some good and efficient people were selected through this way also. For capacity building of second line management, training programmes are being implemented. Under the aegis of Public Sector Restructuring and Internal Audit Board (RIAB), an annual training calendar is prepared and the officers are given training with the help of outside subject experts.
SETTLEMENT OF DUES TO THE BANKS AND FINANCIAL INSTITUTIONS
Many PSUs owed short term and long term loans from banks and other financial institutions, the pay back of which was not timely and proper which resulted in huge arrears and strained relations with the lenders. Consequently, these agencies withdrew from financing the PSUs and their operations were adversely affected. In 2006-07 the dues to banks by seven companies were too high and their financial operations were badly affected. Total amount to be paid by these companies was Rs. 359.66 crores.
Government have taken special steps to settle this issue once for all. High-level discussions were held and the dues of Rs. 359.66 crores were settled for Rs. 89.39 crores payable at equal instalments.
PERIODICAL MONITORING OF PERFORMANCE
For the last four years, monthly review of performances of the PSUs is done every month. The Minister and the high level officers of the Department attend these reviews.
The monthly review has proved to be an effective tool for improving the performances of the companies. The details of performance of these units for a month are collected by RIAB by tenth of next month and the same is analysed by them and the report is presented in the review meeting. Detailed analysis of the performance is done in the meeting focussing on the implementation of the decisions in the previous meetings, achievement of production vis-a-vis target, financial position, implementation of modernisation / development projects, if any, etc. Decisions taken are furnished to them by the end of the meeting itself.
AUDITING OF ACCOUNTS
It was a matter of serious concern that there were huge arrears of auditing of accounts in the PSUs. Some companies had not audited their accounts for more than ten years. There existed no financial planning and the figures reported were not factually correct. The internal auditors in many companies had not brought out the real issues and at least in some companies they were giving tacit consent to the wrong practices of the management. To address these issues Government prepared a panel of Chartered Accountants and directed the companies to appoint internal auditors only from this panel with a direction to change them after three years. A fast track system was adopted to complete the pending audits with the help of Auditor General. Concurrent audit of more than one year was permitted by the AG and this has proven very effective. In almost all operating units the internal audits are up to date and statutory audits are pending in some companies mainly due to procedural problems.
MUTUAL SUPPORT AND COOPERATION
Government initiated special steps to harness the synergy of PSUs and to organize their operations on terms of mutual benefits. Since many companies are operating in similar fields, combined sourcing of raw materials, providing technical support and avoiding competition between the companies could be achieved through this step. Financial assistance is being provided by well off companies to those, which are in need of money. Preferences were always given to other PSUs in case of sale / purchases of products and services. Support from the government departments also was ensured.
STRATEGIC TIE-UPS WITH CENTRAL PSUS / GOVERNMENT
It was an innovative idea of the government to associate with Central PSUs for the revival and modernisation of state enterprises for technology up-gradation and better professional management of these companies. The State government has a limitation on investing huge amounts in new projects for modernisation and technology up-gradation. We could overcome this by tying- up with central PSUs that have the synergy. Four companies are so far put forward to go for tie up with Central PSUs or Central Government agencies. They are TELK-NTPC, SCL- SAIL, KEL-BHEL, and SILK-AUTOKAST-RAILWAYS. KELTEC, a company primarily doing machine work was taken over by M/s Brahmos in 2007. Kerala Minerals and Metals Ltd., is setting up a 500 TPA Titanium Sponge Plant with full funding of VSSC and technology support from DMRL. The whole Titanium Sponge produced in the plant will be taken by VSSC for their space application. Once this plant is set up, India will be the seventh country in the world having the Titanium Sponge manufacturing technology. Travancore Cochin Chemicals Ltd. is setting up a new Sodium Chlorate plant for ISRO at the cost of Rs.22 cr . The cost of this project is borne by VSSC and the product will be fully lifted by them.
In addition to the above, business relations are developed by Keltron with Indian Defence, BEL, ECIL and ISRO. Steel Industrial and Forgings Ltd. has long standing tie-ups with ISRO.
Heavy Engineering Corporation of India Ltd. has expressed willingness to collaborate with Steel Industrials Kerala Ltd. Government is looking for more strategic tie-ups with Central Government and central PSUs.
MERGER AND AMALGAMATION
A proposal to merge companies of similar line of production and to harness the synergy is under serious consideration. This will reduce the overhead expenses; improve cooperation in sectors of technology, manpower, marketing and finance. Moreover, a bigger organisation will be more capable to meet the challenges of markets. Some small companies have already merged into single entity. This is a time consuming process as lot of procedural formalities are involved. Some more SOEs are in the process of merger.
EXPANSION, MODERNISATION AND NEW PROJECTS
In the budget for 2010-11, Rs. 54.80 crores is allotted for the development and modernisation of the PSUs. During this year it is planned to implement expansion programmes to the tune of Rs. 275 crores in nine companies. In addition to the above, ten more units are going to be started in this year investing Rs. 170 crores.
(Dr. Gopakumar is with Industries' Dept. Government of Kerala)
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