In an effort to steer the country, particularly West Bengal, out of the problem of sickness, a group of young students of the Institute of Engineering & Management, Kolkata, have come out with a prescription for turning around such units. The suggestions, which many believe are quite practical, seem to have fallen on deaf ears as far as the West Bengal government is concerned. This is surprising as the government has a separate industrial reconstruction department to look into such problems.

Critics say the West Bengal government is more interested in maintaining employment than in turning around the 66 companies that it owns. Out of these, 44 are with the Bureau of Industrial and Financial Restructuring (BIFR). In fact, the state government has been footing the wage bills of these companies so that the employees are not thrown out on the streets. Critics term this as "state philanthropy".

One cannot say that the critics are totally right. At least five of such sick units have really turned around. But five out of 66 is well below the mark. The situation would have been different had there been a proper perspective, supported by specific strategic management practice and political will, critics feel.

However, students of the Institute of Engineering & Management are still optimistic. They have concluded that since many of the problems faced by these sick units are common, their turnaround strategies, too, can be common. The students have identified the basic problems as: products whose demand is low, absence of new product development, extra manpower resulting in high employee cost and lower productivity and profitability, high factory cost, very high interest burden compared to sales and total costs, obsolete plants and old civil construction hindering diversification and expansion of projects, lack of finance necessary for making investment in the diversification and expansion projects, as banks and financial institutions are reluctant to lend.

In fact, some case studies conducted by these students are eye-openers. For instance, the one on Durgapur Chemicals Ltd (DCL) conducted by Arnab Dasgupta and Devraj Sarkar, and the other on West Bengal Chemical Industries Ltd (WBCIL) by Suvajit Sinha and Partha Pratim Bhattacharya.

These two units, owned by the state government, are in the chemical business and, hence, have some synergy. DCL produces high-quality stable bleaching powder, caustic soda, liquid chlorine and phenol and bottled hydrogen gas, while WBCIL produces mineral water, sodium bicarbonate for bakeries and antacids. Both have skilled but excess manpower (928 and 140, respectively) and enjoy good industrial relations. Despite this, DCL incurred a total accumulated loss of Rs 231.33 crore till March 31, 2000, while WBICL incurred a loss of Rs 9.57 crore.

The reasons are simple. The value of their products are less than the cost of production. In 1999-2000 fiscal, for example, DCL spent Rs 26.48 crore to produce products worth Rs 16.40 crore and thus incurred an operating loss of Rs 10.08 crore. The figures for WBCIL are Rs 2.56 crore, Rs 1.79 crore and Rs 0.77 crore, respectively. What is surprising is that DCL's employees' cost is as high as Rs 10.35 crore, i.e., 39 per cent of the total cost or 63 per cent of the production value. The corresponding figures for WBCIL are Rs 0.97 crore, 38 per cent and 54 per cent. With such high manpower cost, no company can expect to make profits.

If DCL wants to reduce its operating loss to `zero', it will have to increase production 3.45 times and for a `zero' net loss 6.67 times. For WBCIL, the figures are 4.92 times and 7.36 times. Therefore, the propositions are absurd.

DCL's plants are obsolete, and civil constructions is old. They also contribute to its huge loss and hinder diversification and expansion projects. Moreover, demand for the company's main product, caustic soda, is declining, as the domestic caustic soda industry is facing recession due to the government's import policy. This is true for the company's other products too.

On the other hand, WBCIL's mineral water is the only BIS-certified indigenous variety. Even the quality of its containers (pet bottles) fulfil the World Trade Organisation's sanitary and phyto-sanitary norms. But due to lack of marketing and advertisement, this product is not popular. It is operating on a conversion agency contract, and that too against reputed brand names. The company says it does not have money for such drives. Even if there was money, the management is not sure whether a government organisation would go for advertising.

Does all these mean that these companies have no future? No, say the students. DCL can turn around provided the management chalks out a well-considered strategy and gets the required support from the state government. The strategy should include modernisation of the plant and diversification to products having high value addition potential and opting out from production of threatened items like caustic soda. It can produce hydrochloric acid and synthetic tanning agents from hot-pressed naphthalene, which can be procured from the neighbouring Durgapur Steel Plant (DSP) of Steel Authority of India Ltd. In addition, it can diversify into production of blow-moulded HDPE and PVC containers, rigid PVC pipes, bicycle tyres and tubes, HDPE woven sacks, polyethylene films and bags, polyethylene-lined jute bags for fertiliser produced in DSP, polyurethene foam and polystyrene foam from products of Haldia Petrochemicals.

For all these, DCL needs to instal and commission modern plant and equipment to increase production value at least by more than 6.76 times. But where will the money come from? The company has 67.6 acres of free-hold land, a chunk of which is unused. The management can develop this surplus land into fully developed industrial plots and subsequently sell them at the market rate to supply chain members, ancillary units and other chemical manufacturers, it is suggested. If necessary, the management can opt for joint ventures, too.

As regards WBCIL, even if it has the potential for diversification of its product range, it cannot go ahead due to environmental restrictions. Its plant is located in the densely populated Jessore Road, Kolkata. Lack of working capital as well as venture capital support have long been a bottleneck for its diversification plans.

How, then, can the company turn around? The group of students have a ready plan. According to them, first, the company has to concentrate on mineral water, only then it should go in for any expansion. Or, the company can develop its entire 2.97 acre prime land into fully residential plots and sell them at market rates. Thereafter, it can shift all its operations to Durgapur where land would be available from DCL. In that case, the company can go in for production of some high-potential items like herbal weight control food compound, herbal scents and perfumes, herbal toiletries and many other products, which DCL can also produce.

Sounds fine. But what about the trade union leaders? They may oppose any move to shift from Kolkata to Durgapur. Even though the West Bengal government issued a policy statement in January 1998 allowing sale of surplus industrial land enabling units concerned to mobilise funds, none could avail of the opportunity fearing pressure from various quarters.

Hence, the need for political will. If the state government is really serious about the problem of sickness it needs to take bold steps to allay such fears and lend support to the management. Otherwise, say the youngsters, the day is not far when these units will collapse and employees will be jobless.