The government’s decision to disregard its best advisers and go ahead with a Rs 200 crore revival package for ailing public sector unit Scooters India is yet another example of how political considerations have a detrimental effect on business—not to mention the added drain on government finances. The consensus is that the government’s decision to bail out Scooters India—finance minister P Chidambaram advised that the company be shut down, and heavy industries minister Praful Patel had last year advocated the sale of the company to a private player—was driven by the fact that Uttar Pradesh will play in an important role in next year’s Lok Sabha election. Both the Congress president and vice-president represent Lok Sabha seats from UP. In 2011, the Cabinet had decided to divest its entire stake through a strategic sale to a private party, but this plan was put on hold due to pressure from Congress party leaders from Uttar Pradesh ahead of the Assembly elections there. This, even though companies like Piaggio, Mahindra and Atul Auto were said to be interested in the sale.
Scooters India’s Vikram line of three-wheelers may have a market in rural India—alternatives offered by Piaggio, TVS and Mahindra are more expensive. But Scooters India has been in the red since 2002-03 and there is no viable plan to turn it around. More important, does the government need to be producing 9,000-10,000 three-wheelers a year?