The landed poor: public sector undertakings

Some of the poorest PSUs sit over rich land resources. But can the sale of land save the day for them?

jasleen

Jasleen Kaur | July 12, 2013




In India, persons deemed to be craving for too much success and riches are routinely ticked off with the “you can’t take your wealth to your grave, can you” question. But what is impossible for human beings seems like a near certainty for sick public sector undertakings (PSUs). Most of them, it seems, will have to take their wealth to their graves.

Many of these PSUs, which were established during the Nehruvian socialist era, faced huge competition post-liberalisation in the 1990s and lost heavily to competition and became non-performing assets. They sit over huge tracts of unused land, which the government is now actively considering unlocking.
At the annual day celebrations of the competition commission of India (CCI) in New Delhi in May, finance minister P Chidambaram questioned periodic bailouts given to sick PSUs. He said it was necessary to see if these packages were “distorting the competitive arena”. He also said that “favouring PSUs by the government can be anti-competitive”.

But would selling the land really help sick PSUs start operations to survive in this highly competitive market? What is the way out for a sick PSU? Unlocking its land bank or giving it another lifeline by giving it a revival package? Or for that matter disinvesting it in totality?

Though there are no clear answers to these questions, the cabinet is slated to soon take up a proposal for a surplus land utilisation policy for central public sector undertakings (CPSUs), recommended by a panel of experts. Headed by SK Roongta to look at reforms in central public sector enterprises (CPSEs), the committee was constituted by the planning commission. Although various CPSUs have surplus land, the policy mainly aims at helping loss-making CPSUs to make better use of available resources and get benefit out of it.

While the board for reconstruction of public sector enterprises (BRPSE), the apex advisory body for PSU revival, is pushing hard for utilisation of valuable land resources of ailing companies to reduce the centre’s burden, the government is yet to take a final decision.

BRPSE chairman Nitish Sengupta feels monetisation of excess land will help reduce cash and non-cash support being given to loss-making PSUs and would reduce the burden on the government. He says the government is not even in a position to give more money to many of them and they must accept that reality.

BRPSE has recommended revival of some 60 PSUs in the last few years. Acting on its recommendations, the government has provided assistance of more than Rs 36,000 crore to these PSUs. That includes more than Rs 6,000 crore as cash and Rs 30,000 crore as non-cash assets. But the huge assistance has not really resulted in improving the companies’ performance, as most sick PSUs have not cut down on production or retrenching of employees, and continued to perform poorly despite getting the ‘dole’.

“Sick PSUs should bring change in their management and change their products and technology with time,” suggests Sengupta.

State governments not ready to bite the bullet yet
Sengupta, who had written to Tamil Nadu chief minister J Jayalalithaa and her West Bengal counterpart Mamata Banerjee, urging them to take over the Ooty-based HPL and Roopnarayanpur township of Hindustan Cables, respectively, says he did not get any response from the state governments.

“Wherever there is land available, why not utilise it constructively? The state governments can utilise it even for housing projects and can make a lot of money out of it,” he says.

Both units have a lot of land resources and if the state governments took them over, the land could have been used for various profitable purposes, he says. “A large portion of the land is (owned by) the state governments. We asked them to take the responsibility to run the PSU, instead of us controlling it from Delhi. But they did not want to take the responsibility,” he says.

There have been several cases when the board has recommended PSUs to get money from constructive use of their land instead of depending on the government entirely. But in most cases, Sengupta says, state governments put restrictions, or do not give permission to sell the land. British India Corporation at Kanpur, Uttar Pradesh, is one such example: it got approval from the centre to sell its land but the state government did not approve the proposal.

Sengupta argues that a revival package to sick PSUs does not assure its actual revival: “The government cannot keep giving money to sick units. No PSU can be profit-making till it starts making money out of basic operations. How long would the government feed them? NTC (National Textile Corporation) got revival packages and sold its land but it is still (running) in losses.”

The government had considered unlocking the land bank of sick PSUs to generate revenue. In August 2012, the ministry of heavy industries and public enterprises had circulated a note to set up a public sector land development authority (PSLDA) to identify excess land with sick units that can be sold for commercial use. The ministry was hopeful of reaping benefits from the move. But the proposal is yet to see the light of day.

In its report, the Roongta panel had recommended creating PSLDA (on the lines of the rail land development authority, which develops vacant land in its possession for commercial use to generate revenue through non-tariff measures). It said since many loss-making CPSEs have land in excess of their current or future needs, it would be desirable to create PSLDA for the purpose of developing such land and unlocking their real value. The PSLDA, the panel suggested, would identify the excess land and bid them to be developed commercially. The resources generated from development of excess land could be ploughed back for the business development of sick enterprises.

OP Rawat, secretary, department of public enterprises, says the proposal has already been considered by the group of ministers and it would soon go to the cabinet for a final decision.

Profit from the sale or lease of surplus land, seen as a non-performing asset, would be used to repay loans or create capital assets that will generate recurring revenue and would reduce their burden on the government.

Selling land to finance self, a short-sighted approach?
The plan to sell surplus government land to generate cash to ease financial pressures is seen as a short-sighted approach by some.

Surajit Mazumdar, economist and assistant professor at the Ambedkar University, Delhi, says instead of just depending on revival packages or selling excess land, PSUs should create business models that help them compete in the present market situation. “There should be efficient use of the excess land but it should not be linked to the revival of companies,” he says. “PSUs have been run down to this situation because they have been neglected for so long.”
So far only NTC, the textile major known more for its large land bank in metros, has sold land to raise more than Rs 7,000 crore. NTC has used the proceeds from the land sale to partly fund its growth plans and partly to initiate a downsizing exercise.

While NTC is just one example, many PSUs, either sick or loss-making, are sitting on large tracts of land that can come in handy for the government. Instead, these PSUs are entirely dependent on the government for their revival.

One agency for all PSUs
Though most government departments do not have a comprehensive asset register, it is believed that shipping, defence and railways are sitting on the biggest land banks.

“There is no estimate of the excess land sick PSUs hold because not one agency is in charge of all PSUs, unlike in China where one agency controls all PSUs. In India, different administrative ministries hold different PSUs,” says Rawat.

Bringing all data related to land bank of PSUs under one agency is a rational idea, and that agency can decide how best to use the land available in the best possible way, Rawat says. The government, he adds, should ensure available resources are used properly.

“A decision would be taken soon on whether there should be a land pool or whether there should be something regarding land. In individual cases, decision to sell excess land of sick PSUs has helped them, NTC being one such example. But I can’t predict what decision would be taken in general,” Rawat says.
According to him, the decision to form PSLDA is in the pipeline. “Different proposals have been floated, examined and consulted from the ministries concerned and the process takes time.”

Problems faced by loss-making PSUs
Left with huge tracts of surplus land, loss-making PSUs are facing two problems today. First, they do not have cash to expand production facility on the additional land and thus depend entirely on the government. The second problem is of encroachment by slum dwellers and others. Even profit-making PSUs are facing the problem of encroachment.

Most PSUs have been established either on land given by the state, land taken on lease, or on concessional rates. Harbhajan Singh, joint secretary, department of heavy industries and public enterprises, says in most cases only some land is properly utilised. The rest is either lying vacant or is encroached.

Singh says: “We had written to other departments that if companies under them are willing to go for some sort of working arrangement, we can help them. But only a few departments approached us. Like the FCI (for instance) wanted to construct some godowns for food grains on specific locations near the railway tracks. But so far no concrete proposal has been made.

“You need land to start an industry but for that one needs to take a lot of public and development clearances. This arrangement, though, suits people.”

In recent instances of excess PSU land being used for other projects, 65 acres of excess land belonging to Hindustan Machine Tools (HMT) has been used by Hyderabad Metro, while Kochi Metro is also using the company’s excess land.

But Singh disagrees that revival of sick PSUs can depend entirely on the sale of their excess land. “At the most, they can generate some cash. The ideal thing would be to create further employment. Like the HMT land available in Pinjore (near Chandigarh) can be used for developing new projects,” he says.
Singh says the government can think about approaching private players for using excess land of sick PSUs but so far only government companies have been approached.

Problems in converting assets into cash
A senior official at the ministry of heavy industry says excess land of a PSU only comes into notice when the companies approach ministries for revival packages. “That’s the only time they disclose how much excess land they have, and how it can be used to pay loans,” he says. But, he adds, there are a lot of problems in the process of converting this asset into cash.

“Many PSUs have been given land by the state government as a gift. Thus, they face difficulty in getting permission to commercially use that land for some other purpose. Also, encroachment on land, which is counted as disputed land, is another problem faced by such PSUs,” he says.

Thus, in most cases, even if the PSU has the land, selling it becomes a difficult task. A senior officer at BRPSE says even for NTC, the matter went up to the supreme court before it was able to sell its land.

“More than Rs 7,000 crore was collected from the sale (of NTC land). It was a huge amount, that’s why they could manage to move court. But had it been a case of Rs 20-30 crore, how would the PSU manage to go to the court?” he asks.

He says not all companies propose to sell their excess land during the revival package: “All units in Bengal have a large land asset and most of them are sick units which have got revival packages. And they are not selling their land.”

Fixing the right price
HMT Limited’s revival package worth Rs 1,083.48 crore, which includes Rs 447.92 crore cash and Rs 635.56 crore non-cash, has been recently approved by the government. It has a total of 104 acres of excess land worth more than Rs 1,100 crore. The company has to sell the entire excess land and return Rs 447.92 crore to the government.

Government officials say selling land is not an easy job. Many PSUs, which have been given revival packages earlier on condition to sell excess land and repay loans, are still struggling to do that.

For instance, HMT’s revival package of Rs 443 crore was sanctioned in 2007. The company had 46 acres of excess land worth Rs 644 crore. As per the package sanctioned, the company had to sell the excess land and repay Rs 443 crores to the government. But the process to sell the land is still going on.
Similarly, Cement Corporation of India’s revival package was also approved in 2007. The company had to sell seven of its units to utilise the amount for expansion and modernisation before it received the package from the government. But six years later the company is yet to sell the land and take a revival package from the government.

Officials at the ministry of heavy industry and public enterprises say the gap of six years would result in cost escalation of the revival package and a new package may be announced.

So while establishing a single authority for all PSUs would result in creation of a database of the government land and identification of surplus land with all public enterprises, it would also ensure that land records are updated and the market value of the land is assessed, which would help in checking delays, normally accounted, in selling the land.

But the proposal to let the PSUs sell their excess land, virtually lays down the policy that outright sale of land is to be preferred to other modes of earning cash. Instead, the government should work on improving the working models of sick PSUs in order to make them competent in the market and give revival package only if the company can really survive and not because it is a liability of the government.

Comments

 

Other News

Modi wave, it seems, shows no signs of stopping

The voters’ trust in Brand Modi is not a short-term affair – if anything, it is only increasing, or so it seems going by the numbers exit polls have given after the Maharashtra and Haryana assembly elections. Predictions from three TV channels differ widely but each has the BJP/NDA in the top p

All you wanted to know about Maharashtra, Haryana elections

Fact Sheet: Maharashtra assembly elections * Date of polling: 21 October * Date of counting 24 October * Assembly Constituencies: 288 * 2014 results: The BJP contested 260 states, and won 122, with a voting percentage of

Manmohan Singh favours ‘time-tested measures’ for economy

The much hyped ‘double engine’ model of governance on which the BJP is seeking votes has utterly failed, and Mumbai and Maharashtra have had to face some of the worst effects of economic slowdown, former prime minister Manmohan Singh has said. A lot of problems facing Maharashtra

“If the oppn is weak you can’t blame the govt for that”

A three-term Rajya Sabha member, Sanjay Raut is the Shiv Sena spokesperson and its voice in parliament. He is also the executive editor of Marathi newspaper Samana, started by Shiv Sena founder Bal Thackeray. Raut spoke with Geetanjali Minhas on his party’s seat-sharing agreement

Ashish Shelar of BJP says, “We are very confident of victory”

Ashish Shelar, 47, was the president of the Mumbai city unit of the BJP, before he became the minister of school education, sports and youth welfare in the Maharashta government this year. He has represented the Vandre West constituency in the state assembly and seeking re-election. In a chat with

Nobel for economics goes to `global fight against poverty`

The Nobel Prize in economics for 2019 goes to Abhijit Banerjee, Esther Duflo and Michael Kremer "for their experimental approach to alleviating global poverty." The prize, known as “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”, was announc



Archives

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter