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PSUS:
TEMPLES OF DOOM
Buying
Dear Selling Cheap
Dismantling
of the Eastern Bloc and the changes back home have robbed STC of its objective
By
Sumit Mitra
Incorporated: 1956; Headquarters: Delhi; Service: Trade and marketing;
Employees: 1,628; Wage bill: Rs 46.4 crore; Paid-up capital: Rs 30 crore
If
the central PSUs featured so far in these columns have one thing in common,
it is their financial distress. Some of them still managed to move into
the black due to loan waivers or capitalisation of debt, the objective
of such Central munificence being to make the companies attractive to
their prospective buyers. Others are just burnt-out cases. However, there
is still a category of government enterprises that are posting profits
but have lost their relevance. Example: the companies set up to render
trading and marketing services. These companies were born with the agenda
of regulating trade in certain "sensitive" products, eliminating
speculative activity, ensuring availability of essential products and
providing support prices to agricultural products of certain cash crops.
In short, these are socialist ideals lauded in the decades when these
companies were set up.
The star
of these "market intervention" agencies is the State Trading
Corporation (STC), founded in 1956 primarily to trade with the state-owned
export houses of China and East European countries. In those years, most
of the global trade outside the western world was transacted among government-owned
agencies, like the former USSR's Gyazprom, China's China National Trading
Corporation, Iran's GTC and our own STC and Minerals and Metals Trading
Corporation (MMTC). In 1956-57, India's total trade (import and export)
was worth only Rs 1,449 crore, in which STC's share was no less than 50
per cent. In the mid-1960s, STC and MMTC bagged between them around three-quarters
of the country's foreign trade.
Till the
1990s, the concept of trade was different. Most of the items on STC's
import list were canalised through the company. And exports were set to
pre-ordained targets of volume. The system worked through a labyrinthine
bureaucracy which coordinated not with the customer but with its counterpart
across the "Iron Curtain". Every transaction was preceded by
an elaborate floating of a global tender, though the quoted prices weren't
necessarily the best. STC didn't bother about prices though, for the government
underwrote the losses in the import of canalised items. There was a similar
practice in relation to the "government-account" exports.
"For
STC," says S.M. Dewan, its erudite chairman-cum-managing-director,
"the trigger for change came with the disintegration of the USSR
in 1991." The cluster of organisations having names ending with "proms"
in Moscow or the then Leningrad suddenly shut down or began doing different
businesses under their new masters. Back in India, trade policy started
changing track after the World Trade Organisation-led globalisation. With
imports getting increasingly decanalised, thousands of items moved from
the "restricted" or banned list of imports into the Open General
List. Quantitative restrictions on imports were also lifted. With policy
changes being effected across the world, Indian exporters too began finding
their customers directly. The mediation of government babus was no longer
required. Every private corporation in the country expanded its trade
arm-like ITC Global, Tata International, Tata Exports and Birla International.
STC's occupation was gone.
Illusory
Gains: In the past 10 years, most of STC's shown profits are illusory,
with a gradual thinning of its profit margin. Each year, its books cross
the thin line between loss and profit not by trading but by making some
non-trade gains on the government-account transactions. If the Centre
gets STC to buy, say, edible oil for export but has to hold on to the
stock in the absence of a foreign buyer, the interest income from the
deal will go into the corporation's "other income". There are
also regular streams of income from the real estate that STC had acquired
in its salad days, including the Jawahar Vyapar Bhavan, its swank 14-storey
headquarters designed by architect Raj Rewal in central Delhi. There also
is the income from past financial investments. For instance, STC holds
US64 papers worth Rs 126 crore, with its dividend contributing to its
income. In 1998-99, such assorted "other income" was Rs 112.04
crore. If STC did not have its landlord income to fall back on, and if
the government had not made it the beneficiary of its incorrect "market
intervention" decisions, the company would have taken a loss of around
Rs 100 crore instead of posting a net profit, as it did, of Rs 12.51 crore
that year.
Dewan admits
that STC is a "gigantic anachronism" in an age in which globalisation
and Internet-driven e-commerce have left trade margins wafer thin. It
certainly cannot support a workforce of 1,628 people, with a salary bill
of Rs 46.40 crore, which is a good 20 per cent of its total expenditure.
In the private star trading houses, for that matter, the wage bills are
between 3 and 5 per cent of the costs. This realisation drove the Disinvestment
Commission to recommend in its ninth report the disinvestment of the entire
91 per cent government holding in STC to a strategic partner. After the
Department of Disinvestment passed it on to the Cabinet Committee on Disinvestment,
the panel modified it, stating that the government could keep 16 per cent
stake, the employees could pick up to 10 per cent in stock options, thereby
leaving an entitlement of 74 per cent, including market purchases of the
few floating shares, to the strategic partner. However, the Union Ministry
of Commerce raised some queries about how the Government could best recover
STC's huge reserves of Rs 415.43 crore from the disinvestment. Following
this, a committee of joint secretaries has been appointed to re-draw the
road map for privatisation.
Will any
trading house be interested in STC? Seems doubtful. Corporation insiders
say that the cream of the staff have already moved to the private sector,
so there are not many trade wizards left there to be pressed into action.
The cherries to be picked, however, are the STC properties that may be
worth the ransom of several dozen kings. The 20,000 sq m at STC's disposal
at its headquarters is shown in the books to be worth Rs 35 crore, but
the current value is upwards of Rs 200 crore. There is also the STC/MMTC
Colony in south Delhi, valued at Rs 250 crore now, and flats scattered
over the posh Asiad Village in Delhi, Mumbai's Malabar Hill and Calcutta's
Park Street. That's where STC's value lies. Not in the piles of rice bags
or the barrels of edible oil it moves in and out of the country, buying
dear and selling cheap.
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