The Hindu Business Line : Fiscal arrears of PSUs hurting Kerala finances

The State Budget is paying a very high price for maintaining its PSUs and co-operatives at their present state of inefficiency, according to Dr K.K. George of the Centre for Socio-economic and Environmental Studies (CSES).

At the end of 2000-01, he said, the State had extended loans to the tune of Rs 3,544 crore to PSUs. Outstanding investments amounted to Rs 1,883 crore.

The major reason for the low amounts of dividends and interest received from these huge amounts of loans and investments lies in the poor performance of these undertakings. Most of the arrears in interest and principal due to the Government are on account of public sector undertakings.

"The PSUs are maintained, despite being a drain on the budget, partly due to an old mindset which equates all PSUs with public utilities irrespective of their products and services," he said.

The accumulated losses of 43 state PSUs stood at Rs 3,273.98 crore in March 2002 and it was estimated to be around Rs 3,500 crore by March 2004.

The poor financial performance of most of the public sectors is due to lack of professional management. As a result, there has been a continuous default in repayment of high cost loans availed by these companies.

Much of the accumulated losses would be on account of interest plus principal accumulated, dues outstanding to government establishments such as KSEB and Sales Tax department and depreciation, says Mr M.P.S. Nair, former Managing Director of state-owned Travancore Cochin Chemicals (TCC) Ltd. According to him the conventional accounting system followed by the PSUs here is also partially responsible.

He said that most of the units failed to avail the current opportunity of low cost loans because of the continuous default in repayments affecting their credibility.

Several companies, which have the potential to become profitable, had been able to secure low cost loans to liquidate the high cost loans and improved their profits. For instance, the Cochin International Airport Ltd (CIAL), has secured loan at 7 per cent to liquidate its high cost loan from Hudco.

Even, the TCC had utilised the loan from Kerala Industrial Revitalisation Fund (KIRF) during the term of the previous government to settle the Rs 49 crore ICICI loan at 19 per cent interest for nil payment of accumulated interest amounting to Rs 12 crore, Mr Nair pointed out.

KIRF was set up to support industries that are likely to come out of red if the long-term loan burden is eased. "The revival of TCC is an exemplary case. It is not government grant at all, only allowing the units to service debts with in their means," he said.

Bankers also found this option attractive as it helped to recover the money from loss sectors and reduce NPAs. Also they could invest the recovered money in the then booming IT sector, which yielded good profits in the next year itself, he added.

In fact, major problem of Fertilisers and Chemicals Travancore Ltd (FACT) is interest and instalment payment of the Rs 400-crore OECF loan taken for the new ammonia plant, a company source pointed out.

The Union Government got the loan for 3.5 per cent per annum and then gave to FACT at 16.5 per cent. Recently it reduced the rate to 7 per cent. Current rates for loans in the financial market are 6-6.5 per cent.

Many of the major players in the industry avail huge working capital at 6 per cent only, he said.

For facilitating the ongoing revival of the manufacturing sector, banks and industry shall settle the interest issue at mutual benefits, they added.