Making white elephants dance

Written by M Sarita Varma | Updated: Mar 15 2010, 06:12am hrs
The heady sandalwood scent has begun to once again waft out of the tiny state-run soap factory in Kozhikode, after the long spell of 25 years when its balance sheet was splashed in red. Kerala Soaps Ltd has not just raised shutters again, but has also sent the first lot of its flagship brand Kerala Sandal soap, a much sought-after-product during the British era, to the shops.

We will output 6,000 MT of soap per year, 50% of the installed capacity, in the phase I of revival, says PP Bhaskaran, GM, Kerala Soaps. Of course, the Rs 7.5 crore capital infusion by the state government has come in handy.

New machinery has been installed and a detailed marketing network put in place. Kerala Soaps Ltd is the latest in the series of turnaround operations in the world of small PSUs in the state. Kerala government, saddled with the countrys largest fleet of PSUs, is on a marathon spree to spruce up its showcase of turned-around units.

Kerala now has 88 functioning PSUs, compared to other leading PSU-nursing states like West Bengal with 66 units, Karnataka with 65 units and Maharashtra with 55 units. The key differentiator, however, is the effort to make these white elephants dance. In 2005-2006, Kerala PSUs were a collective loss-maker to the tune of Rs 70 crore. But after a series of monthly shoring up drills, the units are poised to post over Rs 200 crore profits in 2009-2010. If five more institutions could bury their losses, Kerala would secure the rare distinction of spurring its entire bevy of PSUs on a profit gallop.

We are putting money in PSU businesses, even as the Centre targets to raise Rs 40,000 crore next fiscal by selling its stake in PSUs, says state industry minister Elamaram Karim. Out of the 41 commercial PSUs, 36 have started earning profits. The rest may follow suit by end of the current financial year, says Karim. In several units, the managements signed MoUs with unions with clear stipulations that there would be no wage hike for the first three years till the units make profit.

But the ambitious PSU revival campaign is not without its critics. A good deal of the turnaround story is a book-adjustment exercise, alleges CP John, a member of the state Planning Board during the former Congress-led UDF regime in Kerala. There is at least a unit with a profit as fragile as Rs 20,000. The sustainability of the PSU turnarounds too should be addressed, says John.

As expected, the revival path was all uphill. This involved unprecedented political synergy between the Congress-led central government and the Left-led Kerala government to the level of forging strategic tie-ups between central PSUs/institutions and ailing state units. Thus Keltec became the missile backroom workshop for BrahMos. After valuation by SBI Caps, Indian Railways has agreed to set up a Rs 85-crore wagon-parts unit in the ailing Autocast Industries in Chertala. Transformers and Electricals Limited (TELK) in Angamaly is emerging as the the mobile transforming supply unit of NTPC.

Basically, we focused on filling the gaps in critical input, whether it was management expertise, strategic alliance or working capital, says K Padmakumar, secretary, Restructuring and Internal Audit Board (RIAB), Kerala. Even now the state is trying to cope with and remedy poor audits in PSUs, with some units having an audit backlog as old as 10 years. Due diligence strategies like updating the audit position, review of audit committees and change in internal auditors, once in three years, have been prescribed. The next phase would be to make PSU accountability as stringent as that of listed public companies, says Mridul Eapen, member, State Planning Board.

The most important move, perhaps, was the professionalisation of Boards, complete with salary hikes for the right person. Thus, for the first time, a professionally qualified young CEO of a modest state PSU in a faraway hamlet could earn a take-home salary of

Rs 1.25 lakh, provided he met his targets in time in the PSU turnaround game. Nothing would have been effective, if employees were not motivated with hikes, and career stagnation was not attended to, says T Balakrishnan, principal secretary (industry), Kerala.

In a sudden ferment of its PSU-fostering passion, the LDF government in Kerala has vowed to set up fresh PSUs to nurse to profit, once the existing bunch of ailing units is set on the turnaround track. With an investment of Rs 125 crore, eight PSUs will be set up this year, says TM Thomas Isaac, state finance minister. Cocking a snook at the Centres PSU disinvestment Yes, it is a political statement too, agrees the minister, but one where the red will not stain the balance-sheet.