Causes of Sickness among State Level Public Enterprises of Kerala

Causes of Sickness among State Level Public Sector Enterprises(SLPEs) of Kerala : Some Lessons

Author : Dr. Baby MD, Reader, Reader Research and PG department of Commerce, St Dominic’s College, Kanjirappally

Industrial sickness is a global phenomenon. It adversely affects industrial production, optimum resource utilization and employment (Ministry of Industry, 1993). As companies fail, employees lose employment; other firms that are suppliers or customers are forced to make difficult adjustments to their operations; governments suffer from reduced tax revenues and increased social security costs. The heavy social and economic costs of company failure can be reduced through the implementation of proven company turnaround measures which would reverse sickness and promise a new life to the failing company.

The State Level Public Sector Enterprises are a dominant part of the public enterprise system in India. The SLPEs are regarded as a major instrument in the hands of the State Governments to hive off their commercial activities organized departmentally. However, their financial performance has been disappointing. They have become a ‘major cause of the growing fiscal deficit’ (PC, 2002, p. 23). The macroeconomic performance of the State PEs (PC, 2002) reveals that despite their satisfactory growth in terms of investment, their financial performance was unsatisfactory. Instead of earning a decent rate of return, these enterprises registered a compound annual growth of 17.36 per cent in their net losses. The manufacturing and utility category of enterprises presented a very bleak picture in terms of their financial performance and investment use (PC, 2002).

The State of Kerala has the largest concentration of SLPEs in India with 113 out of the total 1070 SLPEs in India (about which information is available). The performance of the SLPEs of Kerala is also disappointing. The number of profit-making SLPEs is only 38. The SLPEs together made a net loss of Rs. 221.69 crores as on 31st March, 2005 (BPE, 2006).

As per RBI data, at the end of March 2002, there were 1,77,336 units identified by banks as “sick” having outstanding dues of 4,81,895 crore. Of these, 1,67,574 were non-viable units with outstanding bank credit of Rs. 4,14,676 crore. Similarly, according to the Department of Public Enterprises (DPE, 2005), as on March 31, 2004, 88 Central Public Sector Enterprises had incurred a loss Rs. 8399 crore. 70 CPSEs had been registered with BIFR owing to complete net worth erosion.

In Kerala out of 113 SLPEs only 38 companies could make profit in 2004-05, (BPE, 2006). Of the remaining units, 49 SLPEs reported making a total loss of Rs. 501.50 crore and 26 SLPEs were non-working due to their huge financial losses and unviable businesses.

Review of literature

Numerous units in both public and private sectors went sick, closed down and were left idle for years, thereby putting into disuse a huge amount of capital assets of the country. The tardy performance of PEs over the years invited considerable attention from different quarters. Government machinery including the administrative ministry, government departments, Planning Board, Reserve Bank Of India, Financial Institutions, politicians and academic community have invested considerable time and energy to unearth the reasons for poor performance. They brought out the important causes of industrial sickness which were considered here for detailed study.
Method
The study covers 10 selected companies in the manufacturing category which reported a loss for five consecutive years during the period 1991 to 2005. Total 49 senior executives were interviewed and responses were collected in a structured interview schedule. The collected data were then analysed using appropriate statistical tools.

Results and Discussion.

The data for the came from a survey of 49 respondents belonging to 10 selected companies. The possible causes of sickness suggested in the literature were considered through 37 selected variables and the respondents were requested to state their opinion on the relative contribution of these variables to the sickness of the companies they belonged to, using a five point-scale: 1 for ‘Small’, 2 for ‘Moderate’, 3 for ‘Medium’, 4 for ‘Great’ and 5 for ‘Greater’.
The Factor Analysis procedure has isolated 11factors that brings sickness in SLPEs of Kerala which are given below( 78.95% variation) in the order of their significance.
1 Absence of professionalism
2 Inadequate finance / improper financial management
3 Project Management deficiencies
4 Management handicapped with unruly labour & scarce materials
5 Confused leadership leading to delayed decisions
6 Status of a government department.
7 Weak competitive positioning
8 Shaky control over staff
9 Changing economic conditions
10 Complacency and resistance under government umbrella
11 Lack of spending on key areas like technology and personnel

Conclusion

Government as owner and regulator of the economy wants a strong public sector. The growing menace of sickness in PEs reduces the government’s capacity to influence the economy and waste valuable public money. Turnaround attempts aim at giving another chance to sick PEs to reverse their sickness and stand on their own feet. Any turnaround effort requires adequate attention to be given to the factors that have led the company to sickness. It may help the management to devise suitable turnaround measures that can suitably ward off the causes of companies’ sickness.