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PSUS:
TEMPLES OF DOOM
The
Pill That Failed
Incorporated:
1961; HQ: Gurgaon; Product: Antibiotics, vitamins, oral contraceptives;
Net worth: (-)Rs 1,161 cr; Annual wage bill: Rs 65 cr; Average salary:
Rs 7,356 p.m.
By
Sumit Mitra
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Once
the largest producer of penicillin in India, IDPL's share in antibiotics
is negligible today
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Whatever
the founding fathers of the ailing public sector in India may be accused
of-blind statism, apathy towards the market, lack of faith in businessmen's
morals-nobody can fault them for narrowness of vision. The steel plants
and heavy engineering factories that came up in the first 20 years of
independence under state ownership are an obvious testimony to the grand
scale of industrial planning in the Nehru era. Size was of great importance
in other public-sector industries of the age too. Like the Indian Drugs
and Pharmaceuticals Limited (IDPL), which was set up in 1961 to make penicillin
bulk drugs and other life-saving medicines. It makes almost nothing today,
only packages some bulk drugs bought from the market as capsules or tablets.
But the
IDPL complexes, spread over Gurgaon near Delhi, Hyderabad and Rishikesh,
will take your breath away for their sheer spread. The headquarters sit
on a 90-acre estate, a stone's throw from the glitzy farmhouses on the
capital's periphery. The going price of land in the area is Rs 2 crore
for an acre. A recent study by the IDPL management has calculated the
price of the company's land and buildings, as on March 31 last year, at
Rs 1,412 crore.
Such impressive
fixed assets stand in stark contrast to the company's business profile
and its bottom line. In the 1960s, IDPL's Soviet-built plants worked to
full capacity to make it, with Hindustan Antibiotics, another PSU drug
company, the largest producer of penicillin in the country. Today its
share of the basic antibiotic market has fallen so low that it can safely
be ignored in rounding off. From the hundreds of products it once offered,
the basket has only 17 now. And even these are formulations based on outsourced
bulk drugs. Lack of working capital does not allow the company to buy
the bulk drugs in required quantities. "We do just-in-time marketing,"
says an executive, "buying the raw material after securing the order."
It is nothing but a trade operation on a small scale.
IDPL was
never profitable, but nobody cared for profits in the public sector till
recently. In 1992, however, the company was referred to the Board for
Industrial and Financial Reconstruction (BIFR), which directed the operating
agency, the Industrial Development Bank of India, to issue notices for
the takeover of the company. But there was no response. The reason is
obvious; the company's liabilities will put off any buyer. IDPL's total
loan obligation at the close of the last fiscal was Rs 1,595 crore. Its
outmoded Soviet plants, installed at its three main units, cannot match
the efficiency of the equipment currently in use in India, not to speak
of the technology being used in China, the world leader in bulk penicillin.
IDPL Chairman
Major-General (retd) V.K. Sareen has little background in the pharmaceutical
industry and hasn't got much to charge up his disheartened army for battle
against its competitors in the marketplace. He identifies the reasons
for IDPL's decline as "the social obligation with which it was born,
the inconsistent government policy on drugs and the abrupt change in the
price mechanism". Sareen is particularly bitter about the Chinese
imports. "While the price ceiling under the Drug Price Control Order
for one billion units of Penicillin G is Rs 1,025, the Chinese are selling
it here at Rs 400. How can we remain in business?"
However,
the real cause of IDPL's sickness lies in politics. Throughout the 1970s
and the 1980s, political pressure from leaders demanding investment and
creation of jobs in their states forced IDPL to expand its operations
through subsidiaries in Uttar Pradesh, Rajasthan, Orissa and Bihar. As
a result, the workforce has ballooned, the wage bill alone accounting
for two-thirds of the operating expenses in most of the past five years.
Salaries add to the company's loan burden every year. In 1998-99, the
interest on loan charged to the company's profit and loss account was
Rs 97.49 crore, 17 times its operating income in the year.
The problems
don't stop there. IDPL staff is not only surplus but possesses little
or no relevant skill. Out of 7,178 employees, only 880 are executives,
the rest being either workers or supervisors promoted from the ranks.
Almost 80 per cent of the employees are above 48, recruitment having been
stopped many years ago. Many employees are engaged in other jobs and come
to the factory for an hour or so only to mark attendance. In an industry
where margins are under constant squeeze, the pay dirt in the workforce
is the knowledge worker, not the aged blue-collar employee. IDPL is an
absolute stranger in the new marketplace.
This column
has featured a number of similar burnt-out cases-for instance, the Tanneries
and Footwear Corporation in Kanpur and the Mining and Allied Machineries
Corporation in Durgapur-for which privatisation cannot be the answer.
On the other hand, a wind-up order from BIFR is difficult to enforce by
a polity wedded to permanence of existing jobs, not the creation of new
ones.
A solution
perhaps lies in giving the employees a share in the sale proceeds of the
company's land and buildings. By thinking big, the architects of the "temples
of modern India" unwittingly provided for future golden handshakes.
Top
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METRO TODAY
As
the Government brings in more people and mops more money in taxes, it
must be seen to be rewarding those who come forth and pay up, writes India
Today Associate Editor V. Shankar Aiyar in 
