Some of the companies identified for strategic disinvestment by NITI Aayog might also be shut down as buyers have not showed interest. These include Engineering Project (India), Hindustan Prefab and Hindustan Fluorocarbon.
Three years after the first Narendra Modi government announced a scheme to expedite the closure of perennially sick central public sector enterprises (CPSEs), little has been achieved on this front, with just two relatively small firms having been wound up since and the process for most others stuck due to delays in disposal of land parcels and litigation.
As many as eighteen sick CPSEs have been approved for closure after the NDA came to power in 2014 and two others were brought under the process earlier.
Indian Oil -CREDA Biofuels and CREDA-HPCL Biofuels are the two firms that have completed the closure formalities. Continuous losses however continue to erode the net worth of relatively larger firms like Hindustan Photo Films (negative net worth of Rs 20,330 crore, FY18), Indian Drugs and Pharmaceuticals (Rs 7,534 crore) and Hindustan Cables (Rs 5,673 crore).
The delays in disposal of lands and litigation (mostly on petitions filed by workers’ unions and banks) are hampering the progress of closure process.
The government has almost entirely paid statutory dues such as salaries/VRS compensation and taxes in regard to these firms. The revised government rules mandated closure of a unit within 13-months from the date of issue of minutes of the cabinet approval as against years it took earlier.
Even as these closures are pending, more CPSEs are being identified for closure. Some of the companies identified for strategic disinvestment by NITI Aayog might also be shut down as buyers have not showed interest. These include Engineering Project (India), Hindustan Prefab and Hindustan Fluorocarbon.
The CPSE sickness has been intractable issue over years, with its deleterious impact on government finances and the erosion of capital assets created. There were 188 government companies and corporations with accumulated losses of Rs 1,23,194 crore as on March 31, 2017. Of these, the net worth of 71 companies had been completely eroded by their accumulated losses. In FY18, there were 71 loss-making CPSEs which posted combined losses of Rs 31,261 crore, up 14% y-o-y. STC Ltd posted a loss of Rs 657 crore in FY18.
Even though the NDA government disposed of nearly 3,000 acres of land belonging to the 19 units, there are about another 4,000-acre land in their possession. “A lot of land are leased from state governments and those can’t be disposed of without the concurrence of states,” an official said.
So far, about 6,000-odd staff of these 19 entities have taken VRS or been retrenched. In many cases, employees have gone to the court against VRS conditions and have obtained stay orders on the closure process. In some cases including that of the Central Inland Water Transport Corporation Ltd, lenders too have got stay on the liquidation process as their dues have not been cleared. The name of a company can’t be struck of the registrar of companies if statutory dues are not settled.
For example, in the case of HMT Watches, which got Cabinet nod for closure in 2016, 813 employees were relieved on VRS while 2 were terminated. However, 146 employees at its facility in Ranibagh (Uttarakhand) did not opt for VRS and challenged the decision in High Court, which granted a stay. However, the company’s land and buildings in Bangalore and Tumkur were sold to ISRO and some to GAIL.
The Cabinet approved closure of Ooty-based Hindustan Photo Films in October 2004. But the process had remained stuck for 13 years owing to a litigation over VRS terms. The Madras High Court finally resolved the matter related to the compensation to some employees in 2017. Even though it has virtually no operations for years, Hindustan Photo Films continues to be one of the top loss-making CPSEs with annual losses of about Rs 3,000 crore each for the past several years due to unpaid liabilities including loans.