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Running on empty

Source : BUSINESS_STANDARD
Last Updated: Sat, Jan 12, 2013 18:40 hrs
Iconic Vespa to be relaunched in India

Finance Minister P Chidambaram hopes to contain the fiscal deficit at 5.3 per cent of gross domestic product, and though no one knows how he will achieve this, one thing is for sure: frittering away government energy and funds on a public sector unit that was virtually a non-starter from its inception in 1972 is not the way to go about it. Indeed, given the stringent expenditure cuts imposed on government departments by a regime committed to heavy entitlement spending, the proposal to sink more than Rs 200 crore in reviving Lucknow-headquartered Scooters India Ltd is particularly inexplicable.



On Thursday, the Cabinet deferred a proposal to this effect from the Department of Heavy Industry, the ostensible reason being that the minister concerned, Praful Patel, was not present. It is not clear whether this explanation is an alibi for allowing the proposal to die a natural death -- the kindest fate for a government-controlled company, started in an era when the public sector aspired to commanding heights, that still never presented any meaningful competition to private-sector contenders.

To be sure, Scooters India produced fairly decent scooters called Vijai Super and Lambretta (the latter mainly for exports), and a three-wheeler branded Vikram, ubiquitous in small-town India. But as any company operating in a free market will attest, manufacturing is only one part of the consumer business; selling and marketing - the hard part - is quite another proposition. Many public sector companies, especially those operating in non-monopolistic markets, have struggled to crack the art of marketing. Scooters India, like Hindustan Machine Tools, a fellow patient in the intensive care unit called the Board for Reconstruction of Public Sector Enterprises (BRPSE), struggled the moment the market for consumer goods was partially liberalised in the mid-eighties under Rajiv Gandhi's premiership.

Just as HMT was swamped by expansions from private sector tractor- and watch-makers, Scooters India started struggling the moment Bajaj Auto was able to expand (and produce a competitor to the Vikram, its mainstay for the past two decades), and TVS and Hero were able to find foreign technology partners to offer competitive products in the market. By 1988, unsurprisingly, Scooters India was gasping for survival. Yet, inexplicably, politics prevented a sale to Bajaj Auto. So the company limped on, with some 1,200 employees doing little more than taking home a pay cheque. The two-wheeler lines were closed in 1997 and it started making losses from 2002-03. By 2009, it was referred to the BRPSE.

In about 2010, the government sensibly considered another move to go for the outright sale of its 95.38 per cent stake - incredibly, it is still listed on the bourses. The problem is that this proposal comes too late. It would take an unusually strong-hearted businessman to buy a company that has made losses of Rs 20 crore on sales of Rs 212 crore, has about 1,200 people and no brand value or goodwill to speak of. Instead of throwing good money after a losing concern, the government would do well to cut its losses and sell the company for value of whatever assets it has, an argument that could well be applied to a host of other loss-making PSUs.

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