People's Democracy

Restructuring Of PSEs : An Alternative Approach

Nirupam Sen

IN recent weeks there has been a series of articles in the national press, commenting on the government of West Bengal’s current attempts to restructure some of the public sector units in the state. Several of these articles, including one written by the minister for disinvestment of the central government, Arun Shourie, accuse the Left parties of hypocrisy and dualism in their approach to privatisation. The allegation is that while the Left parties have vehemently been criticising the approach to privatisation taken by the central government and by some state governments such as those in Andhra Pradesh and Orissa, they are trying to do more or less the same thing in West Bengal.

Before going to analyse the policy of Public Sector Restructuring in West Bengal, it has to be recognized that the state government has to function in an economic milieu that is not of its own choosing, but one that is determined by policies at the national level . No state government can implement a policy that is a radical socio-economic alternative to the path of development that is presently being imposed by the central government on the people. The neo-liberal policies of liberalization and privatization which the left parties have been resisting at the centre, have further contributed to macro economic condition that have greatly increased the difficulties of the state governments to undertake positive economic strategies.

In view of the above, the facts that have forced the state government to undertake such exercises should be appreciated in their proper perspective.

Year after year, state government has bailed out these PSUs by infusing fresh capital, loans, and subsidies. Reports of the CAG reveal that the functional among these PSUs have absorbed an investment of Rs 18,241 crore as on March 31, 2001.

Indirect subsidies by way of unabsorbed interests and guarantees have created significant commitments of budgetary resources of the government, as reflected in Table 1.

 It is no longer possible for the government to continue with commitment of resources of this magnitude in respect of its PSUs in view of the competing demand for investments in the social and infrastructure sectors. In this context, the government has decided that its loss-making undertakings will require to be restructured to function along principles of self-sufficiency through achieving viability in their respective operations, thereby ending their dependence on Budgetary resources of the government. Admittedly, the West Bengal government, like a number of other state governments, has been experiencing very severe fiscal problems. It must be appreciated that the current fiscal pressures on the state government result from the liberalization policies of the central government, which have had various effects including reduced ability to increase tax revenues, and other additional claims of spending.

NATURE OF PSEs RESTRUCTURING IN WB

In spite of these facts , it is necessary to clarify the exact nature of Public Sector Enterprises Restructuring in West Bengal and to explain how it differs from other models.

One must also appreciate the objective reality for which the restructuring of PSUs have become an urgent necessity.

In the first instance, restructuring measures are being initiated under policy guidelines formulated in respect of the loss-making manufacturing enterprises of government.          

The majority of these enterprises have come to ownership of government through acquisition by different mechanisms, from the private sector. At the time of their acquisition, they were without exception in near-terminal stages of industrial ‘sickness’. The stated objective of the government was to protect the interests of their workforce and these acquisitions were not effected in consideration of their intrinsic potential for viability. Having taken over these industrial assets that inherently suffered from technological obsolescence and shrinking markets, government has discharged its responsibility towards the workforce by providing budgetary support as working capital loans year after year, to bridge the operating revenue deficits of these enterprises. Government’s constraints of resources have not however, permitted adequate capital investments necessary for the modernization, diversification, and technology upgradation that would permit viability of their operations in an increasingly competitive market environment. In view of this lack of viability, these enterprises have not been able to generate adequate resources to repay the loans provided by the government, thereby accruing accumulating losses and a negative balance sheet that has denied them access to institutional resources for capital investment.

A few of these enterprises have become non-functional due to their basic structural unviability. The government has, notwithstanding their status, continued with budgetary support towards meeting the employment cost of these enterprises over the years. As a consequence, the assets of these enterprises have remained blocked. The government now seeks to release the assets of these structurally unviable enterprises to allow their deployment in economic activity for contributing to the state’s economic growth.

A second category of the loss making manufacturing enterprises are those that require investments for modernization of their obsolescent manufacturing processes and for product diversification, to attain viability. Instead of continuing with such enterprises accumulating losses due to the lack of investments that government cannot afford, it has been decided to open these enterprises to private investment as Joint Ventures to facilitate their attainment of viability and contribute to the growth of the SDP. This will result in a further decrease in claims upon the state’s budgetary resources to subsidize their operating losses.

A third category of loss-making manufacturing enterprises are those that are presently earning a fair share of their total expenditure with the government providing budgetary support to balance the deficit. These enterprises have a market share and possess brand equity and are in a position to achieve viability with necessary restructuring measures. Government will retain ownership of these manufacturing enterprises with the enforcement of well-considered restructuring measures that will facilitate their access to institutional resources and end their dependence on budgetary support of the government.

But, the Left Front government not only recognizes the necessity of a qualitative improvement in the provision of services/utilities by its non-manufacturing undertakings but also emphasizes the importance of facilitating the evolution of a vibrant and self-reliant public sector that will catalyse economic growth in the state. This approach is pragmatic in view of government's belief that the public sector has not lost relevance and is capable of contributing to national economic growth. Government's policy is also in stark contrast to the policy of withdrawal from manufacture and provision of utilities/services in the public sector that is being pursued by the government of India.

CENTRAL GOVERNMENT's

APPROACH

It is well known that in respect of its loss-making manufacturing enterprises, the, government of India has followed an approach of withholding budgetary support and building up arrears in wages and related dues of its employees before offering a voluntary separation compensation package. In effect, there is little that is voluntary in this process; employees have been compelled to accept separation compensation. Sums of money that are in considerable excess of that assessed to be required for the revival of these enterprises have thus been indiscriminately spent on distributing separation compensation (VRS). MAMC and Cycle Corporation of India are cases in point. The policy pursued by the government of India aims at indiscriminate disinvestment/privatization in respect of its profit-making undertakings mainly with a view to generate resources to bridge its revenue deficits. These are the policies that seek to destroy the central public sector created with large investments of public funds, as being inimical to the national interest.

There is an essential difference in our approach that seeks instead, to restructure our loss-making undertakings with the objective of promoting their viability and consequently, adding to the growth of the state’s economy and freeing budgetary resources for investment in social and infrastructural development.

GUIDELINES FOR RESTRUCTURING PF PSEs IN WB

The guidelines that have been evolved for restructuring our loss making manufacturing enterprises are as below: -

a) Enterprises that have potential for achieving viability will be retained under ownership of government with necessary restructuring measures that will promote their access to institutional resources.

b) Enterprises with potential for viability with considerable investments which the state government is not in a position to provide are to be opened for joint ventures with the objective of promoting their viability. The search for potential investors is to be conducted with transparency and will target the continued industrial use of their assets. In the first phase, the state government has identified ten such units for joint venture participation .

c) Structurally unviable enterprises are to be formally closed to permit the release of their assets for deployment in economic activity. The state government has already decided to close down three units namely Indian Paper Pulp, Sundarban Sugarbeet Corporation Ltd. and one unit of West Bengal Ceramic Development Corporation. Actually, all these three units had stopped their operations long back and are virtually closed. The state government has exhausted all options to revive these units and these efforts having proved unsuccessful. Hence there is no other alternative before the government than to declare formal closure of these units.

COMPENSATING MANPOWER DISPLACEMENT

The process of restructuring to be undertaken in accordance with the guidelines mentioned above, will inevitably require some of the employees of the enterprises to face displacement from their present employment. Unlike the approach of the government of India, we have not sought to build up any defaults in the payment of employees’ dues although the meagre resources of government have come under increasing strain in this effort.

The state government has decided that all employees facing displacement will be offered an Early Retirement compensation package that they can, at their option draw in lump sum or in monthly installments till their scheduled date of superannuation in accordance with their present employment. The guiding principle of the latter option is to seek to make available to such employees, a monthly compensation that is close to what they are receiving at present with provision for receiving their normal retirement benefits upon their scheduled date of superannuation. Another guiding principle has been to incorporate into this package, medical and accident/disability benefits through linkage with insurance schemes with group discounted premia, that are superior to that they receive presently as a part of their employment conditions.

The government recognizes the trauma and pain of loss of employment but in view of the compelling necessity of taking recourse to this process of restructuring, is trying to offer a compensation package that will permit the retirees to live a life of dignity with the best social security possible under the circumstances.            

It has also been proposed that each individual retiree will be counseled under a Social Safety Net Programme to be designed by the government, that will assess his need and potential for reskilling with a view to secure him the means to put the compensation received, to productive use in generating augmental income for his family. Deserving persons will be retrained towards this objective.

Our government believes that its intention of trying to secure the best interests of the employees of its enterprises facing displacement as a consequence of restructuring, is adequately reflected in the totality of this compensation package that is proposed to be offered. Here again, the approach of our government is patently deviant from that of other state governments and that of the government of India.

All the central trade unions operating in our state and the unions of the respective units are being taken into confidence in this entire exercise of restructuring. The state government already had several rounds of discussions with the respective unions and central trade unions in this regard. A Status paper has also been sent to all the central trade unions in the state for their comments.

Our restructuring process is thus strikingly different from that of the central government, which has been selling off some of the most profitable and best-performing PSEs. Both the manner of these sales and the subsequent performance of the disinvested PSEs have led, justifiably, to misgivings about "crony capitalism." Because profit-making enterprises have been sold, the sale involves a long run loss to the government exchequer, even though it may appear as a gain in the short run. Also, enterprises that are dealing with public goods and services, or activities with large externalities are not being considered by this programme of the state government.

Table 1

Budget Support to PSUs (including subsidies) (Rs crore)

Data Source: Reports of C&AG; State Budget Estimates and Economic Reviews.