Recently, government announced that it is going for the revival of the two sick Public Sector Undertakings. This article will analyze the underlying facts about the same.
WHICH PSU’S WERE CHOOSEN RECENTLY?
⇒ Hindustan Machine Tools (HMT)
⇒ Hindustan Machine Tools (HMT)
⇒ Hindustan Cables (HC)
WAY OF REVIVAL
⇒ By way of Cash
⇒ By way of Cash
⇒ Remaining, would be in the form of non-monetary consideration such as waiver of loans and interests on these PSU’s
HISTORICAL BACKGROUND OF PSU’S
⇒ In 1947, we had only five firms in the strategic sector.
⇒ After independence & acceptance of five year plan, around 250 PSU’s emerged known as the “temples” of India (said by Nehru)
⇒ Even State Governments were allowed to set up PSU’s.
⇒ Reason for setting up PSU: i) For rapid industrialization ii) For rapid infrastructure building
⇒ Along the lines of Communist state like Russia (USSR at that time).
⇒ Primary motives behind setting up a PSU now has changed to political consideration.
⇒ Many of the important private industries were nationalized and converted to PSU
⇒ Generation of employment and perceived development of backward regions replaced economic considerations for the establishment and spread of PSUs
⇒ They were a huge success at the start due to no competition, government backing, rigid licensing policy, etc.
⇒ Profession management was soon replaced too bureaucratic management with politicians often taking over as the heads of many of these PSUs.
CHANGES WHICH FOLLOWED
⇒ Soon, licensing regime was abolished & new market-based reforms were introduced.
⇒ Because of this now PSU’s were struggling to tackle the competition.
⇒ Problems that led to the crashing of market share of PSU:
1. high costs of production
2. poor quality of products
3. unimaginative marketing techniques
4. Lack of professional leadership
5. Autonomy
6. technological bankruptcy
7. inadequately trained manpower
8. politicised trade unionism
1. high costs of production
2. poor quality of products
3. unimaginative marketing techniques
4. Lack of professional leadership
5. Autonomy
6. technological bankruptcy
7. inadequately trained manpower
8. politicised trade unionism
⇒ The bankrupt PSU’s were either referred to Board for Industrial and Financial Reconstruction or the Board for Reconstruction of Public Sector Enterprises.
⇒ Over the years, government tried to bail out the sick PSU’s but was not able to help much as the problems were very deep like the lack of new equipment, technology or skilled personnel on one hand, and competition from the private enterprises on the other. Added problems were of the high cost of production and sales were low.
THE CURRENT REVIVAL MECHANISM
⇒ These measures are more of accounting and financial ones.
⇒ These measures are more of accounting and financial ones.
⇒ It means that current revival mechanism is about pouring more and more money in the PSU’s & making accounting stricter.
⇒ Money alone is not going to help.
⇒ Complete “Revival” requires the following items which are not being focused :
i) Change in Management
ii) Technology infusion
iii) operating control
iv) strategic marketing
v) training and redeployment of manpower.
i) Change in Management
ii) Technology infusion
iii) operating control
iv) strategic marketing
v) training and redeployment of manpower.
⇒ Government while assessing these PSU’s has only considered two financial parameters, viz, positive net worth and a net profit for three successive years from the year of the receipt of the revival package.
⇒ Some of the PSU’s did show some positive change but the PSU’s which got the lion’s share in the revival package failed to uplift themselves.
⇒ The parameters of net worth and net profit are totally inadequate to measure the profitability.
⇒ Any revival package will show positive change only for a short while, if it is not backed by better quality of products and services or prices.
MONITORING REVIVAL
⇒ None of the revival package based on financial and accounting parameters is going to yield sustainable revival of the PSU.
⇒ None of the revival package based on financial and accounting parameters is going to yield sustainable revival of the PSU.
⇒ Focus should be more on the ratios of the liquidity and efficiency generated from the money.
⇒ A study has revealed that out of the 13 “revived” firms, there has been no or little improvement in operational efficiency or in liquidity position.
CONCLUSION
In the absence of other measures for change management, like infusion of business leadership, technology and product upgradation, manpower redeployment and strengthening of research and development activities, the cash component of the revival package would be sufficient only to pay the arrears of wages and other operating dues, without resulting in any sustainable operating efficiency and without operating cash surplus. While it is important to pay the arrears of wages and the other operating costs, the question to be asked is, will these measures be sustainable?
In the absence of other measures for change management, like infusion of business leadership, technology and product upgradation, manpower redeployment and strengthening of research and development activities, the cash component of the revival package would be sufficient only to pay the arrears of wages and other operating dues, without resulting in any sustainable operating efficiency and without operating cash surplus. While it is important to pay the arrears of wages and the other operating costs, the question to be asked is, will these measures be sustainable?
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