Revival of the Public Sector in Kerala and the Left Government

Revival of the public sector is an important component of the alternative program pursued by the Left led governments in India. It indeed is a difficult task given the overall hostile national environment generated by the neo liberal policies and the financial restrictions imposed on the state governments by the Fiscal Reforms and Budget Management Acts. Nevertheless, the Left Democratic Front (LDF) government in Kerala (2006-2011) succeeded in restructuring the state manufacturing public sector units into vibrant agents of industrialisation.

The focus on public sector is not something new. It has always been a part of the agenda of any left led government. However, given the privatisation mania of neo liberal reformers, there was added urgency and importance in reviving the public sector in Kerala during the tenure of the last LDF government. It was realised that the success of this initiative would be a major challenge to the neo liberal reforms. It was this politics that was in command.

 In 2005-06, 32 of the 44 companies were loss making propositions that aggregated to Rs. 125 crores. The overall net loss of the public sector amounted to Rs. 70 crores. In contrast by 2009-10, all but seven companies became profit making ventures with a total profit of Rs. 240 crores. The loss incurred by five loss making units was only Rs. 6 crores. How did this turn around happen? This was the result of a well thought out business strategy adopted by the Industries Department in consultation with the managements, trade unions and specialists and the budgetary support extended for its implementation.

1.      Financial Restructuring

It was realised that all the public sector units were in dire need for additional financial support. But they were handicapped to seek institutional finance as the net worth of the majority of the units was negative and were deeply indebted already. The objective of financial restructuring was to clean up the balance sheets of the companies so as to enable them to receive institutional financial support. The debt of the companies was from two sources, government and financial institutions. As for the government all the accumulated interest was written off and outstanding loans were converted into equity. Thus without any additional cash burden to the exchequer most of the companies were once again made net worth positive. The tax arrears were also written off. Liberal one time settlements were offered for electricity dues arrears.

However, settlement of the debts to the financial institutions required prolonged discussions with the banks and other agencies with government acting as the mediator. The companies owed nearly Rs. 360 crores to the banks. The whole public sector loans were taken up for negotiation as one package. Many of the companies were closed or under BIFR process so that it would have been extremely difficult from the banks to recover the loans. With pressures from the state government and the incentive of potential government business, the banks gave a fairly liberal One Time Settlement (OTS) of less than Rs 90 crores. Equally importantly they agreed to continue to service the future working capital requirements of the firms with government guarantee and after due diligence.

During the five year period, the total budgetary supports to the PSUs were Rs. 275 crores. When the left government came to power in May 2006, the budgetary provision for the public sector units was merely Rs. 5 crores. It was enhanced to Rs. 50 crores in the Alteration Budget. Nearly Rs. 90 crores from the budgetary support was utilised for OTS with financial institutions and 30 crores for settlement of arrears of VRS payment inherited from the previous government.  Nearly Rs. 100 crores was investment towards modernisation. Nearly 50 crores was employed as working capital. The major part of the working capital requirement continued to be sourced from the financial institutions.

2.      Re organising the Management

A serious problem of the PSUs’ was unprofessional management because the chief executives were mostly appointed on political considerations. Majority of the experienced and efficient executives in the companies had deserted when VRS was implemented by the previous Congress Government. The tasks before the LDF Government were the following: a) attract management experts at senior level b) improve skills of the existing officers c) introduce proper incentive system d) undertake timely audit e) ensure annual budgeting and f) undertake close monitoring of the performance.

A Selection Board was constituted for recruitment of the managerial level officers. Search Committees were also constituted. The salaries and perks of managers were enhanced to Rs. 60,000 – 1.25 lakhs per month. Under the aegis of Revitalisation and Internal Audit Board (RIAB), awards were instituted for exemplary performers.  Annual calendar of training programmes was prepared for skill development of the officers.

3. Autonomy and Accountability

There was no proper budgeting or business planning for the public sector companies. Ad hoc decision making and planning of operations was replaced by a process of annual budget preparation. The budgets were to be approved before the start of the financial year. They were to be prepared in prescribed formats and had to be submitted for evaluation by RIAB. Annual budget meets were organised in March where after detailed discussions final decisions were made. Periodical monitoring was undertaken to ensure that the business plan was implemented and budget lines adhered to . Monthly review at ministerial level became a regular feature.

Lack of proper audit had undermined accountability in the public sector. Some companies had arrears of more than 10 audit years. The auditing was undertaken in a haphazard manner. A panel of reputed charted accountants was prepared for auditing the accounts of the unit. A fast track system to complete the pending audits was instituted with the help of Auditor General.

Within the above frame work of accountability, the PSUs were to be given maximum autonomy. The practice of government secretariat interfering in routine commercial decisions had severe adverse impact on the efficiency of the public sector units. The number of procedures that required concurrence of the finance department was reduced. Importantly, it was agreed that the best performing public sector units were to be given full autonomy on an experimental basis. A major part of the surplus of the successful public sector units could be utilised for their own expansion or for investment in other public sector units without advance permission from the finance department.   

4.      Mutual Support and Co-operation between PSUs

Conscious measures were undertaken to harness the synergy of PSUs. Since many companies are operating in similar fields, combined sourcing raw materials, providing technical support and product market links could be achieved. The government also instituted a policy of preference for purchase from the public sector. Thus the Health Department agreed to purchase the medicines, Electricity Board the cables and transformers and Water Authority the meters from the public sector units. Memorandum of Understanding for business tie ups was signed between companies and their government customers.

Steps were taken to merge companies of similar lines of production. Stand alone textile mills were merged with State Textile Corporation. Their joint purchase operations of cotton itself resulted in substantial saving and made the textile sector as a whole a net profit making operation. Similarly five subsidiaries of Kerala State Electronics Development Corporation were merged into a single company. Similar proposals were prepared for certain electrical and chemical companies also.

When the LDF government came to power in 2006, there were 17 units those were closed for a very long time. Many of them were under orders to be liquidated by the BIFR. The government was successful in regaining the assets of these companies which were utilised for starting new ventures. 

5.      Strategic tie-ups with Central PSUs/Government

It was indeed an innovative idea to associate the Central PSUs for technology up-gradation and better professional management of the state PSUs and the corollary additional investment. Kerala’s pubic sector transformer company entered into a tie-up with NTPC, steel company with SAIL and electrical company with BHEL. The casting company Autokast was to become a joint venture with Indian Railways. Yet another company doing machine work was taken over by M/s Brahmos.

The previous Congress government had prepared plans for privatising Kerala’s prestigious transformer company TELK. But now reborn as a joint venture with NTPC (Kerala Government being a major shareholder), there was a three fold increase in the manufacturing capacity to 10000 MVA including 1500 MVA of service capability. In the case of Autokast, Railways were to be the major share holder in the new Kerala Rail Components Ltd. As a result of the tie-up with SAIL, the re-rolling mill capacity was to be raised to 60,000 tons. The tie-up with ISRO was proposed for product diversification. Thus Kerala Minerals and Metals was to set up titanium sponge plant and Travancore Cochin Chemicals a new sodium chlorate plant. Similarly business relations have been developed by other companies with Indian Defence, BEL, ECIL and ISRO.

6. Expansion and Modernisation

After consolidating the existing PSUs, an ambitious program of expansion and modernisation was initiated in 2010-11. The plan involved expansion programmes to the tune of Rs. 275 crores in nine companies. Besides, ten new manufacturing units were announced in the budget which involved a capital investment of Rs. 170 crores. These Greenfield projects were completed by March 2010. The premises and renovated building of many of the closed down units were utilized for the purpose. More than 1000 new direct employment was generated from these projects. Overall above 5000 fresh appointments were made in the public sector units.  For implementing the above projects, the surplus funds of other profit making PSUs were utilized. Financial Institutions provided for the gap. At a time when Government of India was busy in privatising the public sector, the LDF Government in Kerala was not only expanding the existing public sector units but also setting up new ones. What greater contrast would there be between the two sets of policies.

6.      Healthy Industrial Relations

The trade union movement has played a signal role in preventing the implementation the policy of privatisation during the last UDF government period. The ill famous Choudhary Committee had recommended immediate sale the closed units, privatisation of viable and potentially viable companies and also sale of minority stake in the profit making companies. In almost all cases trade unions had put forward alternative revival plans. These trade union initiatives found the basis of the restructuring and revival plan of individual companies during the LDF period. Trade union support was an important factor that ensured the success of the program. Unlike during the period of the previous government, the new period was remarkable peaceful and healthy industrial relations.  Wage revisions were implemented in all most all companies resulting in 25 - 30 percent  increase in salary.

Drug and Pharmaceutical Factory in Alappuzha  

To strike a personal note, I was involved as a member of legislature from Mararikkulam (Alappuzha) not only in the resistance movement to privatisation but also the revival of the public sector units in my constituency.

Let me start with Kerala State Drug and Pharmaceutical Company (KSDP) that had been set up in 1974 as a kitchen factory to the Health Department. Wrong choice of technology in setting of the vitamin plant and the refusal of the Health Department to purchase medicine from the factory made the company sick and net worth negative. By 2004-05, the production had grounded to a halt with meagre turn over of less than 30 lakh rupees. BIFR ordered the agency bank to undertake measures for closure. It was then a “Save KSDP” committee was set up with all trade unions and general public. It spearheaded the struggle against the closure and even picketed the agency bank. Expert committee drew up an alternative program for revival. The strategy did not envisage any major investment from the state government. But the government was expected to purchase medicines and provide the payment in advance. The government refused.

The LDF government, soon after come to power, signed an agreement for purchasing medicines and the factory started production. A program for modernising the existing plant to GMP standards was initiated. The production increased to nearly 30 crores in 2010-11. This year also saw the inauguration of a new beta-lactum factory of Rs. 46 crores and the production capacity was enhanced to more than Rs. 100 crores. The foundation for a new plant non beta-lactum factory was laid. Government also agreed to finance setting up of an advanced drug testing laboratory.  The factory also turned around to profit.

But alas the UDF government came and the policies have been reversed.  During the current year the purchase of medicine by the health Dept. has been only of Rs. 3 crores so far. A big stock of medicine has accumulated and the factory is once again in crisis.

The Autokast in Sherthalai.

Another factory public sector unit in my constituency is the Autokast set up in 1984 for manufacturing all kinds of ferrous castings. The company went sick right from the start because of the wrong choice made by the management to go in for production of steel ingots. By the time the company returned to its original mandate, it had become sick. In 1992 it was referred to BIFR and in 2004 winding up of the unit was ordered. It was then a peoples’ convention was held jointly by all trade unions. The convention set up an expert committee to prepare a revival project which was submitted to AIIFR and the order for closure was reversed. The revival package involved an investment of Rs. 10 crores for essential repairs. It was understood that 350 tons of production per month, the company would breakeven. The state government refused stating that this level of production cannot be reached. The shop floor meetings of the workers drew up an action plan and achieved a production of nearly 300 tons without even a rupee of additional investment. The government were unmoved.

The LDF government inherited a company with an accumulated loss of Rs.150 crores. Financial restructuring program was implemented. It was decided to tie ups with Indian Railway for a joint venture to manufacture boggy components. Rs. 85 crores were provided in the Railway Budget in 2007-08, and MOU signed between chief minister V S Achuthanandan and Railway Minister Lalu Prasad Yadav. Share holders agreement was also signed. Every thing went topsy-turvy when Mamta became the Railway Minister. She refused to honour the agreement. With the joint venture in uncertainty, the government took certain essential investment in the old plant and very soon break even capacity production was breached. The company generated a working profit for the first time since its inception in 2010-11.

The new UDF government refused to undertake any further investment or to put pressure on the Railways to honour the agreement. Instead electricity board has moved for collection of electricity arrears.

 Komalapuram Spinning and Weaving Mill

The Kerala Spinners situated in Alappuzha was established in 1969 and employed around 800 workers. Originally owned by Birlas, it was sold off to another marvardi firm at the end of 1990s. Company became sick which the workers alleged that it was part of a deliberate strategy of the management to close down the factory. In late 1990s, the management closed down the factory without any notice or payment of dues to workers. An action council of workers launched the struggle. They were unsuccessful in forcing the management to open the factory or to gain the gratuity and provident fund for the workers. Thus the factory remained under illegal lock out for more than a decade when the LDF government came to power. Some workers had committed suicide, many died and most of them dispersed.

The LDF government initiated discussions with the management in Mumbai. The deliberations dragged on for nearly three years. When it became clear that the management was not willing for a settlement, the LDF government took an extreme action which surprised every one. Through an Act passed in the Assembly, it nationalised the mill. The Labour Department also slapped a case against illegal closure and denial of benefits to the workers.

The government from the budget sources has paid up the dues to the workers. Meanwhile, it was declared in the budget speech of 2010-11 that a new factory could be opened before the end of the year. The existing buildings were thoroughly renovated, new machinery purchased and nearly 400 new workers recruited. Formal inauguration was done before the election. Only electricity connectivity had to be provided for the new factory to function continuously.

The new government came to power. One and half years have passed. The brand new factory continues to remain closed. Sathyagraha by DYFI has been going on for the last 200 days. There is no rhyme or reason for the caprice of the UDF government, but is pathological aversion to public sector. 

Each of the public sector unit in Kerala would have a similar tale to tell. Each of them would highlight a stark difference between the approach of the right and the left. Kerala experience has shown that the public sector can be as efficient as the private sector and indeed be a source of engine of growth.