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Above: The Hindustan Newsprint Ltd at Vellore, Kottayam. The state’s move to take over the PSU is questionable

The Kerala government’s attempt to take over the loss-making PSU Hindustan Newsprint Ltd , even as CM Pinarayi Vijayan is touring the world to mop up resources for flood relief, is a disaster in the making

By NV Ravindranathan Nair in Thiruvananthapuram

As ironies go, this one takes some beating. In the week before the Lok Sabha election results dealt the heaviest blow ever to the CPI(M) in Kerala, the state’s chief minister, Pinarayi Vijayan, set out on a world tour to mobilise funds for re­building the state devastated by the 2018 floods. He started the tour in London by sounding the gong at the London Stock Exchange where the Kerala government’s Masala Bonds were issued, offering over nine percent annual interest. The same week also saw the cash-strapped state government’s concerted initiative to take over a sinking central public sector undertaking (PSU)—Hindustan Newsprint Ltd (HNL). It may seem bizarre, but the decision is consistent with the political ideology of the CPI(M)-led Left Democratic Front (LDF) government. However, the move may considerably increase the debt burden of the state.

A closer look at the decision makes it clear that the government’s intention is to send a political message—it is ready to take over loss-making PSUs which the centre is selling off at throwaway prices as long as these companies provide the livelihood.

The LDF and the Congress-led UDF have taken turns ruling the state for the last few decades and both have failed miserably in running its industries. Only seven of the 101 state PSUs have recorded profits in the last fiscal.

Propping up such units makes no economic sense, but it is an integral part of keeping the trade unions happy because it enables them to keep the workers within their fold even if the factory’s future appears bleak.

The HNL factory, situated in Kottayam district, is a subsidy of the Hindustan Paper Corporation, another PSU. For nine years now, it has been in the red but the state government wants to give the impression that it cannot allow the centre to give away the PSUs in the state which had also been nourished by the state at throwaway prices.

Like other PSUs, HNL, too, had been granted land at throwaway prices in the hope that it would provide employment to hundreds of people besides contributing to the industrial development of the state. Insolvency proceedings were to be initiated against the undertaking, but the state government’s last-ditch effort to acquire its stake is clearly aimed at staving off the proceedings.

On April 30 this year, Principal Secretary, Industries, K Elangovan wrote to Hindustan Paper Corporation, the holding company, seeking one month’s time to complete the procedures to buy the shares. Sources in the state industries department told India Legal that the government is in the final stages of clinching a deal with the centre over the disinvestment of BHEL Electrical Machines Ltd, Kasaragod, along with HNL.

HNL had for long been on the disinvestment list of successive governments at the centre. In fact, the Vajpayee government, which had aggressively sold even many profit-making PSUs, had come close to selling it by which time it had to exit in 2004.

The UPA government also mulled the disinvestment of HNL, but was not able to take a bold decision due to compulsion from alliance partners, particularly the Left parties.

When the Modi government decided to dispense with several PSUs, the LDF government pitched in with the populist proposal to rescue the sinking Kerala-based firm.

Earlier, the state assembly had unanimously passed a resolution to take over HNL. In a bid to prop up operations, the state government supplied raw materials at subsidised prices. The company’s accumulated losses totalled Rs 80 crore even though it made profits till 2009. Its fortunes took a dip after the import duty on raw materials was reduced.

The state government, which had given 700 acres of land when HNL was set up is now eyeing to sell half the land to mobilise funds to settle its liabilities. Keeping aside their political differences, the Marxist-led CITU and the Congress’s trade union wing, INTUC, petitioned the state government to step in to prevent the company from being declared bankrupt.

The trade union leaders pointed out to the chief minister that the situation warranted urgent action to delink HNL from the holding company and make it an independent enterprise. The unit, which has 1,200 employees on its rolls, offers employment to about 5,000 persons indirectly.

“The unit could be operated profitably by manufacturing paper for government presses, public sector undertakings and educational institutions in the state. Since the unit needs only 300 acres, the remaining 400 acres could be utilised for various development projects,” said trade union leaders.

They added that the state government should form a consortium of financial institutions under its control and provide a grant of Rs 100 crore or soft loan to clear pending liabilities. Further, government should facilitate the company to mortgage its land resources to mobilise Rs 450 crore for modernisation.

But if the past is any indication, all these may come to nothing. There have been a series of failed attempts by the state government to take over central PSUs and strategic institutions to retain its stakes.

Just two months back, the state government tried to bring the Trivandrum International Airport Ltd under its control but did not succeed as the Adani group quoted a higher price.

There have been success stories, too, though they are few and far between. In June 2018, the state took over a central PSU, Instrumentation Ltd, and the assets of the company were transferred after registering it as Instrumentation Ltd Kerala. The centre is now said to be trying to disinvest 49 percent equity of HLL Lifecare Ltd, and the state government is mulling the idea of taking it over. The state is also planning to take over the land given to private firms like Gwalior Rayons and Perumbavoor Rayons as these have become financially unviable.

In trying to prop up serial loss-making PSUs, the state government may be showing lofty ideals but the undeniable fact is that it has neither the resources nor the expertise to take up such huge tasks. As such, the attempt to take over HNL at a time when the chief minister is touring the world, bowl in hand, to mop up resources for disaster relief would be financial harakiri even if it yields political dividends to the ruling party.

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