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Government pulls up its socks on sick firms
Tue, 18 Nov Pre-Open

The Narendra Modi government has been keen on improving government finances by raising revenues and cutting down on wasteful expenditure. The government recently de-regulated diesel price which is likely to cut down its subsidy burden. Even the excise duty on petrol and diesel has been hiked by Rs. 1.50 per litre on the back of softening crude prices. This is expected to bring in additional indirect tax revenues of Rs 60-70 bn to the government exchequer. In another move, the government has given a green signal for shutting down six loss-making public sector enterprises. This includes the likes of Hindustan Photo Films, HMT Bearings, HMT Chinar Watches, Tunghbadra Steel, Hindustan Cable and HMT Watches.

The closure of the six companies would entail a one-time settlement of Rs 10 bn towards voluntary retirement scheme for around 3,600 employees. The Heavy Industry Ministry has contended that making a one-time settlement is better and eliminates higher recurring expenditure. With regard to the 55 other central public sector enterprises (CPSE) that are sick, plans are being drawn for revival. But the consideration of revival package hinges on the firm having sustainable operations in the long run.

Apart from this, the government is considering the set-up of an entity for the revival of the sick CPSEs. The entity would be funded by financially strong CPSEs who want their bail-out contributions to be considered towards the mandatory 2% corporate social responsibility (CSR) norms.

Sick government firms with large employee base remain a big drain on government finances. Therefore quick closure of these units or a speedy revival through privatization or other measures is the need of the hour. And the government has set the ball rolling by announcing the shut-down of six such firms.

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