Time to sell the small stuff

The headline ‘Scooters India to be sold’ has always brought back memories. As a young reporter back in 1985, I'd spotted the headline for the first time and dashed off to Udyog Bhavan for details. I found myself face-to-face with a surly joint secretary who replied in monosyllables. That was an era when it was anathema to sell public-sector companies and it didn’t take me long to realise the sale of Scooters India wasn’t going to happen.

So, here we are 36 years later, and the government now plans to shut Scooters India and separately sell the brand name as it holds rights to such trademarks as Lambretta (though this is now disputed) Vijai Super, Vikram and Lambro. In the last three decades, India’s two-wheeler industry has grown to be the world’s largest and Royal Enfield has just made a wonderfully sassy move by opening a showroom in Tokyo, alongside Japanese legends like Honda, Kawasaki,Yamaha and Suzuki.

But, sadly, Scooters India, whose product line-up has dwindled to only three-wheelers, has just 90 full-timers and has not enjoyed the same success.

The government plans in its latest privatisation drive announced in this year’s Budget to monetise some of its biggest public-sector assets like Air India, Shipping Corporation of India and Container Corp of India, two so-far unnamed public-sector banks and one general insurance company, as it struggles to wrench the economy out of its unprecedented pandemic-induced contraction.

But, possibly, the Government should also concertedly focus as well on getting much smaller public-sector companies off its books in its “strategic-disinvestment” push. These firms are now, after all, nothing more than unnecessary distractions for the public servants who must oversee them. Some make tiny profits but others are loss-making and even otherwise are unlikely to bring in any huge payback. Still, some of these smaller firms are sitting on valuable real estate that might fetch returns. How about consultancy company Projects and Development India Ltd (PDIL)? Or even Hindustan Prefab?

Inevitably, most of these smaller companies are the product of another era. Consider Hindustan Prefab, which was established in 1948 and which describes itself as one of the oldest Central public sector companies. This was an era when the Indian construction industry was minuscule, to say the least, and Hindustan Prefab was launched to build homes for Pakistan migrants. In 1955, its name was changed to Hindustan Housing Factory and in 1978 that was changed again to Hindustan Prefab. In the 1950s, it accumulated some sterling achievements, including being the company that built Delhi’s Ashoka Hotel, one of the first post-Independence luxury hotels.

Mind you, this is one public-sector unit that has forged a new role for itself in the face of stiff competition. Its annual report for 2017-18 lists 142 ongoing projects and a pipeline worth ₹1,057 crore. It has even ventured abroad to develop a housing project in Myanmar’s troubled Rakhine province. The company was restructured in 2008 and hasn’t needed infusions of cash from the government. However, its annual report puts talk of disinvestment as being responsible for slowing its growth prospects. The report says: “During the last few years, your company’s operations were adversely affected by the process of its disinvestment, affecting the morale of the employee and confidence of the clients.”

Interestingly, the company is sitting on 26 acres in Central Delhi and even has a railway siding from where its products could be easily loaded. Scooters India, too, said in its annual report that uncertainty around the company and whether it would shut, took a toll on its market.

Another product of a very different era was Bharat Pumps & Compressors, which was set up in 1970. Its aim was self-reliance in an era when India could ill-afford to buy expensive and sophisticated machinery from abroad for refineries, petrochemical and fertiliser plants and power sector units. Bharat Pumps never really became a profit-making company except for a brief period after 2005 when a dynamic managing director showed what might be possible with the right leadership. As happens all too often in public-sector companies, Bharat Pumps when into a decline when he moved on to his next job.

Self-sufficiency was the ruling credo of the late 1960s and the 1970s (that's the mantra again now but the government is hoping that it will be the private sector that will shoulder much of the burden). That’s why companies like Cement Corp of India came into being in 1965. But times have changed and Cement Corp is a minnow compared to private-sector giants like UltraTech Cement and Ambuja Cement, now owned by global conglomerate LafargeHolcim. Cement Corp has had a hard time in recent years and for the year ended March 31, 2019, its net profit had slumped to ₹6.35 crore, down from ₹17.99 crore the year before. Here, the clear question is whether the government should be in the cement business when India has such muscular private-sector players. Some, like Pawan Hans, took to the air with high hopes and strong tailwinds in their favour. Today, Pawan Hans has 23 helicopters mostly used for charters. The government’s made three efforts to sell Pawan Hans and is now trying it for the fourth time. The price tag has been slashed to ₹300 crore and the time before the new owner can sell the company’s helicopters also has been cut. What went wrong for Pawan Hans? Perhaps it was a creature before its time. Its smaller planes looked to bring in passengers from smaller cities and that is still a work-in-progress now.

Still, for all the government's talk about privatisation as a major revenue source this year to fund spending, its sales target of ₹1.75 trillion is actually slightly lower than its fiscal-year 2021 goal of ₹2.1 trillion in the last Budget. But to be fair the pandemic intervened, derailing hopes of any sales. Still, even in preceding years, when there was no Covid-19, investor appetite for buying troubled government assets has been limited, leading to the jettisoning of some planned disposals and the need to draft last-resort state-owned buyers like LIC to mop up shares in stake sales in other companies.

In a triumph of hope over experience, the cash-strapped government appears to be counting on actually reaching its privatisation goal this year to fund its spending targets. In the spirit of the general euphoria accompanying the Budget presentation, let’s fervently hope that the government’s ‘For Sale’ signs actually attract buyers this time around.

COMMENT NOW