Scooters India: Shutting down loss-making PSUs a complex exercise

For youngsters growing up in the seventies, a Lambretta scooter was the height of swag. Even to this day, scooter lovers across the country are keen to lay their hands on a Lambretta, which has become a vintage brand. So it is with some nostalgia that one writes about the impending closure of Scooters India Ltd (SIL), the company which bought the manufacturing rights to this Italian brand in the early seventies and continued to manufacture these classic scooters for nearly two decades. Not just scooters, SIL was also known for ‘Vikrams’, those ubiquitous small three-wheelers popular all over Uttar Pradesh.

SIL has been sick for years now but the governments of the day have made repeated, failed attempts to turn it around, disinvest and then to shut down this company. It was first declared a sick company back in 1992 and referred to the Board for Industrial and Financial Reconstruction (BIFR). It emerged from sickness with a positive net worth in 2012-13 or after a decade. Then, the union cabinet under the UPA government’s tenure approved a revival plan for this company in 2013 but three years later, SIL was put on the list of PSUs for disinvestment by the Modi government.

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The disinvestment process remained a non-starter and now, the government is again talking of shutting down this company due to sustained losses. For the September quarter of 2020-21, revenues from operations were just a tenth of the figure seen in the same quarter of previous fiscal year, the company was unable to manufacture any vehicle compliant with latest emission norms and net loss was ₹5.81 crore.

Only, having learnt its lesson from past debacles, the government is now firming up a new set of norms for shutting down loss making PSUs, which would include separation of their land holdings to avoid legal hassles. A cabinet approval for the shutdown of SIL is imminent. New norms for shutting down sick PSUs would be drafted alongside a comprehensive PSU policy, which has also been announced in the recent past. The focus would henceforth be on defining areas of strategic importance so that the government exits all other businesses.

This ties in with the Modi government’s practice of slowly offering a wider role to the private sector in areas which were, till now, believed to be the sole domain of public sector enterprises (PSEs or PSUs). In the coal sector, the government has finished the historical monopoly of Coal India. In smaller airports, which have seen rapid passenger growth but have been unable to take advantage of this due to parent Airports Authority of India (AAI) and its constraints, the private sector led by the Adani Group has emerged as a big player. Even train travel, which has always been seen as a public service with subsidized fares, is now being privatised as some trains would be operated by private parties.

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Does the increasing role of private parties necessarily bring in efficiencies of scale, does it improve service standards as a thumb rule and will it be a panacea for the economic crisis engulfing India as the COVID-19 pandemic rages on? These questions are increasingly relevant now, with the government declaring its intent about a comprehensive PSU policy.

Such a policy will include a list of “strategic” sectors requiring the presence of PSUs in public interest. In strategic sectors, at least one enterprise will remain in the public sector but private sector will also be allowed. In other sectors, PSUs will be privatised. Also, the number of enterprises in strategic sectors will be capped at four and others will be privatised, merged, or brought under holding companies. So in effect, what the government may be signalling is its intent to allow private participation in all sectors.

Privatisation or opening up a sector to private participation has not always led to bountiful gains. Take the case of telecom and aviation sectors, where the public companies – Air India and BSNL/MTNL – gradually ceded control as multiple private operators entered and prospered over the years. Of course, service standards and the bouquet of services on offer improved, countrywide penetration of airline and telecom services also improved vastly because of private enterprise. And the public sector enterprises in both these sectors went from being profitable market leaders to massive loss makers, operating at the margins of the industry.

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But today, both telecom and civil aviation sectors are in deep financial trouble (even before COVID hit airline operations) due to skewed tariff policies and some historic baggage. And the abundance of private operators has done little for the viability of either sector. Not just the public sector companies in each, now even some private operators are seeking government concessions.

The public sector may have lost much of its relevance in public discourse over the years but it continues to have a sizable presence. As per the Public Sector Enterprises Survey 2018-19, 249 central PSUs were operational till March 2019 in five broad sectors. These CPSUs employed over 15 lakh people and paid the government a neat ₹3.69 lakh crore in various levies in 2018-19. What’s even more surprising is that this amount was higher by nearly ₹1,010 crore compared to the payment in the immediately previous fiscal – so government earnings from CPSEs increased.

And assertions of lessening dependence on PSEs notwithstanding, the government has had limited success at best on the disinvestment front. For 2020-21, the target is an ambitious ₹2.1 lakh crore, a three-fold increase over the revised estimates for 2019-20 at ₹65,000 crore. This was against BE of 2019-20 of ₹1.05 lakh crore and much of this target will be missed. The big ticket deals, such as Air India and BPCL disinvestments, are delayed while the government has already gone back on its own assertion of privatizing the loss-makers BSNL and MTNL.