Indian Government Mulls Closing Some Loss-Making State Firms

(Reuters) - Government officials will meet on Tuesday to discuss proposals to shut down some loss-making state-owned companies, risking a conflict with powerful trade unions.

After two decades of halting privatizations, the central government still owns about 260 firms and thousands more at the state level, involved in activities ranging from generating nuclear power to making condoms.

Some of them, including Oil and Natural Gas Corporation and Steel Authority of India are successful, but there are dozens more that have been bleeding cash for decades and kept afloat by budgetary support each year.

On Tuesday, Cabinet Secretary Ajit Seth has called a meeting of top officials to consider what to do with the 10 firms that make the biggest losses. They had a combined net loss of 245 billion rupees ($4 billion) in 2012/13.

The list includes Bharat Sanchar Nigam, Mahanagar Telephone Nigam, Air India, Hindustan Photofilms and Hindustan Fertilisers Corporation, according to a note prepared by the Department of Public Enterprises.

Officials at the department have drawn up proposals to close some.

They include Hindustan Photofilms, a company set up in 1960 to make film rolls and take on the likes of Kodak but declared a sick company in 1996 and recommended for closure by the department in 2003 on the grounds that it could not compete with private players.

The company, based in the southern town of Ottacamund in the Nilgiri hills, went to court and won a stay order on any further proceedings that could lead to its closure.

In 2010 the firm proposed a recovery plan but the government has been sitting on it, with no decision having been made since about the company's future. In the meantime the company's accumulated losses have piled up to 82.32 billion rupees, about 40 times its paid-up capital.

"There is no future for this company in the current environment. It is a fit case for winding down," said a government official at the Department of Public Enterprises, which is overseeing the privatization of state firms. The official did not wish to be named due to the sensitivity of the matter.

The department will be making a presentation at Tuesday's meeting.

The government is also considering a proposal to wind down the watch-making division of HMT Machine Tool Limited after years of losses that have forced it to borrow from the government to pay wages.

UNIONS

Trade unions are opposed to any moves to shut down state firms and the Bharatiya Mazadoor Sangh (BMS), a body affiliated to the ruling Bharatiya Janata Party, said it would work with other unions to block the move.

"We are co-ordinating with all central trade unions on the matter. We are fortunate that all trade unions are on the same page when it comes to these issues," said Vrijesh Upadhyaya, general secretary of the BMS.

Prime Minister Narendra Modi's administration, which took office in May pledging to reignite growth, has embarked on a cautious course of shedding stakes in state firms although it has eschewed big moves.

The government increased its privatization target for its fiscal year 2014/15 budget to 630 billion rupees from the interim budget's target of 480 billion. The target is nearly four times larger than total government divestments in the past four years.

Officials said the government was also looking for ways to revive some of the sick companies through capital infusion, joint ventures and by bringing in new management.