Sensible stand

Updated: Aug 4 2005, 05:30am hrs
North Blocks refusal to bail out chronically sick PSUs is a welcome stand from the economys perspective. More so, since the UPA government has shown little spine in the face of populist political pressures in favour of lifelines for PSUs.

The Board for Reconstruction of Public Sector Enterprises (BRPSE) recommendation for restructuring 15 sick PSUs has been strongly opposed by the finance ministry and the Plan-ning Commission due to paucity of funds. The argument: only those PSUs that financial institutions (FIs) find viable enough to take the necessary risk should be revived. This is perfectly logical. Why should the government add to its mounting fiscal burden by directing limited public money into endeavours that offer no return

Draft rehabilitation schemes being prepared by FIs at the behest of the respective ministries suggest many of the sick PSUs are not worth investing in, unless their interest and loan burdens worth hundreds of crores are waived. However, our economy, with its growing needs for productive investment, is under considerable fiscal stress. The governments support to sick PSUs for meeting salary payouts and glaring resource gaps through foregoing loan/interest payments, conversions of loans into equity etc., is a huge distortion alre-ady. The 12th Finance Commission, too, expressed concern about this tendency resulting in extremely low returns of 4-6% from loans to PSUs, stating it should be at least 10%.

Bailouts cannot revive unviable units. The latest CAG report on PSUs for fiscal 2004 reveals that equity investment in 93 companies has been completely eroded by accumulated losses, making their net worth negative. Yet, in June, the Cabinet decided to settle statutory dues of 15 such PSUs at the cost of Rs 141.41 crore! That the finance ministry is now digging its heels in, must be appreciated.

A pertinent question that arises is about the role of institutions like BRPSE. The idea of setting up the Board was to find the best option for sick PSUs. Has the Board done a proper due diligence before making its recommendations Or is it succumbing to political pressures as usual Why should the finance ministry have to state the obvious Past experience even in implementing reasonable suggestions is poor; what did BIFR, which wanted the closure of 20-odd central PSUs, achieve