Fighting for survival
ON SEPTEMBER 22, at a high-profile meet at the Belvedere Club of Oberoi Towers hotel (Check hotel name) in Bombay, a section of Indian businesspeople and industrialists warned the government to take care its economic policy of liberalisation and globalisation, did not harm their enterprises. On the same day, A Gavisiddappa, chairperson and managing director of Bharat Heavy Electricals Ltd (BHEL), one of the country's largest public sector firms, stated his organisation's "mental, organisational and technological preparedness to face the challenges of operating in an economic scenario of open competition".
The entrepreneurs at the meet included doyens such as L M Thapar, H S Singhania, B K Modi, R Bajaj, J Godrej and K Mahindra. In public, they expressed full support for the Union government's economic policies. But behind closed doors, they expressed their apprehension about possible problems if foreign firms were allowed free rein in the Indian economic field. Thapar is reported to have said, "And sure, a fear we have is that we do not want to lose control of our companies".
In sharp contrast is the BHEL chairperson's aggressive anticipation of foreign competition. BHEL's total turnover last year touched Rs 3,330 crore. Elaborating his point, at an official meeting, Gavisiddappa said, "Even though we have to adapt to free-market determined circumstances, we are looking forward to an exciting future, despite certain odds against us." He added, "Why should I bother to hide the fact that I'm faced with steadily dwindling orders? But I also believe that eventually we shall recoup." But how will that happen?
BHEL is trying hard not to become a casualty of the changing industrial scenario. Gavisiddappa blames the dwindling of orders for BHEL on the scaling down of Eighth Plan investment in the power sector, the increase in bilaterally funded projects and the delay in launching private sector projects.
BHEL is responsible for 65 per cent of the total power generating equipment in the country and was gearing up to meet the country's entire domestic demand, having established the capacity to manufacture equipment to generate 4,500 MW of thermal and 1,345 MW of hydroelectric power annually. However, privatisation of the power sector and protests against large power projects on environmental grounds resulted in no new power plants being sanctioned during 1991-93.
During 1991-92, BHEL secured orders amounting to about Rs 2,450 crore, of which a little more than 40 per cent was from the power sector. Now, with the private sector entering power generation, BHEL has been able to get only about 6,000 MW of the 23,000 MW of additional capacity projected to be added in the Eighth Plan.
Says J P Narayanan, deputy general manager of BHEL's Bhopal division, "BHEL had supplied 95 per cent of the new equipment in the power generating sector during the 1980s. If current trends persist, by 1996-97, its share will drop to 5 per cent." This is because investors are opting for foreign equipment and technology and easy credit facilities.
BHEL has also had to curtail imports sharply because of the steep fall in the value of the rupee and spiralling interest rates. Between 1987-88 and 1991-92, the company's profits before tax fell from 18 per cent to 10.1 per cent.
Says V D Garde, general manager of planning and development at BHEL Bhopal, the oldest and largest of the company's 13 divisions, "India is an international market now and the pace of development has increased rapidly. Our expenditure on technology has to go up correspondingly."
Says Gavisiddappa, "We will have to develop a comprehensive marketing strategy to win over new customers. This can be done only if BHEL can offer attractive supplier credit." BHEL officials explain they are unable to offer credit at competitive rates to cash-strapped buyers, who are turning to foreign collaborators for technology and capital at low interest.
The villains of the piece are the high-tech, rich multinational companies (MNCs). Says Garde, "MNCs are unwilling to share the latest technology, but at the same time want a share of our markets, both within India and abroad. They have the necessary cash and credit to attract buyers."
BHEL ranks among the top 12 international companies in the power field. Its range of products and services cover almost all infrastructural facilities, power, transmission, industry, transportation and hydrocarbon sectors. BHEL is also one of the largest R&D spenders in the public sector: Its 1990-91 R&D budget was Rs 414.5 crore and it has a sophisticated R&D centre in Hyderabad (See box).
The transportation division at Bhopal has designed and developed state-of-the-art traction motors, drives and controls for the railways. BHEL supplies 66 per cent of the Indian Railway's traction equipment. The Jhansi unit of BHEL, which posted a turnover of Rs 156 crore in 1991-92, has produced more than 80 diesel electric locomotives for customers as varied as steel plants, port trusts and even the National Thermal Power Corp.
The present slump in the power sector has affected some BHEL divisions more seriously than others. Says Gavisiddappa, "To compensate for comparatively low orders from the power sector, we have had to develop new products and increase the marketing in the industry sector and sales of spares and services."
To solve its cash crunch and to diversify, BHEL is seeking equity partnership with General Electric Company-Alsthom, Asea Brown Boveri and Siemens to set up companies to manufacture locomotives, semiconductors and power equipment and spares. S K Handa, executive director of BHEL Bhopal, says, "We have offered joint bids for some of the projects and some of them are being finalised."
BHEL's high pressure boiler plant at Tiruchirapalli, which produced boilers for thermal power plants, depended only on government orders. But after economic liberalisation led the government to cut investments in the power sector, the unit, which had an average annual turnover of Rs 820 crore, saw its orders plummet.
Says R Krishna Rao, general manager, "To generate resources for our unit, we diversified into other areas and were able to make an average of Rs 120 crore during 1991-92 and 1992-93. Only by diversifying could we recoup our losses." The Trichy unit diversified into the production of heat exchangers, pressure vessels and fractionating columns for the fertiliser, refining and petrochemical industries and has secured orders from the defence ministry for tank components. It is also making boilers that can use such fuels as agricultural and industrial wastes, straw, bagasse and coal washery residue. The company has also bagged orders for boilers from Malta and Cyprus and for steam generators from Egypt.
Says A Srinivasulu, executive director, "We are looking for exports to the Gulf countries, Malaysia and Indonesia. We recently exported Rs 25 crore worth of industrial valves to Indonesia, one of the products of our diversification effort."
Another area into which BHEL Trichy is moving is consultancy for renovation and modernisation of thermal power plants. BHEL foresees a Rs 500-crore market in renovating and modernising power plants over the next few years. The overseas market for this also has a high potential: BHEL got Rs 20 crore for repairing a boiler for Libya.
BHEL's heavy power equipment plant (HEEP) at Ramachandrapuram near Hyderabad, which manufactures oil field equipment, has also suffered. It is the only manufacturer of onshore drilling rigs in the country and has the capacity to supply 12 rigs annually to the Oil and Natural Gas Commission and Oil India Ltd. This year, however, HEEP has a blank order book.
However, the demand for gas-based turbines for industrial applications and power generation plants, which has increased in India and abroad, has come to BHEL's rescue. In March 1993, Malaysia picked up two 34 MW generating sets and has placed an order for more. BHEL has also offered to supply gas turbines to Indonesia, Jordan and Cyprus. A Subramaniam, executive director of HEEP, says, "From a grim situation last year, we now look at the future with much more confidence. We have substantial bookings for 1993-95."
BHEL's electronics division in Bangalore, which is less dependent on the power sector than other divisions, has also drawn up plans to diversify and divest loss-making products. Says K C Chetty, executive director of BHEL Bangalore, "We used to get orders worth Rs 30 crore from the power sector, but no major orders have come through in the past two years." During 1992-93, BHEL Bangalore registered a turnover of more than Rs 270 crore -- an increase of 25 per cent over the previous year. The higher turnover came mainly from increased orders in the non-power sector, explains Chetty. The unit has moved into production of simulators, automation equipment, rural automatic exchanges, electronic meters and high-capacity photovoltaic cells.
Besides diversifying, BHEL has been streamlining its systems to meet ISO 9000 certification requirements, which is a precondition for most international bids (See box). The two units in Trichy have secured ISO 9001 and 9002 certifications and the company has introduced the quality circles concept to improve productivity in many plants.
One R&D area where BHEL expects to reap well is non-conventional energy sources. The government plans to set up a power generating capacity of 2,000 MW from non-conventional sources by 1996-97, and is making it mandatory for public buildings and institutions to instal solar water and air heating systems. BHEL also manufactures solar water heating systems at Rudrapur, which are now at work at more than 50 places in the country.
BHEL has executed wind farm projects at Tuna in Gujarat and Kayathar in Tamil Nadu. The company has bagged an order from the Andhra Pradesh State Electricity Board to set up a 2 MW wind farm at Ramagiri in Anantapur district. However, private manufacturers are offering stiff competition to BHEL.
The electronics division of BHEL has achieved a high level of indigenisation in manufacturing single crystal photovoltaic cells. BHEL has also pioneered battery vehicle technology in India with support from the ministry of non-conventional energy sources (See box). It has sold about 200 18-seater electravans and is working on a 40-seater electric bus.
But BHEL's plans to diversify into such areas as telecommunications and light aircraft have been questioned by industry watchers. Says a private sector industrialist, "It would have been far better for the company to build upon its areas of strength, rather than venture into untried waters." He also says nonconventional energy technologies "are best left to the large number of private sector entrepreneurs. Can a top-heavy engineering industry really spearhead the development of these benign technologies?" he asks.
Other critics blame the BHEL management for not having planned better to face the competitive environment of the 1990s. "BHEL has tended to blame the government for its failures, after years of enjoying a monopoly in a protected market," says a senior official in the ministry of industrial development.
As far as technological collaboration is concerned, BHEL is top among Indian companies. However, though foreign companies can easily corner power projects in developing countries by offering bilateral credit, BHEL has failed to convince the government to offer similar bilateral rupee credit to boost orders.
BHEL proudly flaunts its export performances. Though its export earnings amounted to Rs 632 crore in 1991-92, it also spent foreign exchange worth Rs 639.72 crore that year on raw materials, components and spare parts.
BHEL is highly overstaffed and trimming its labour force is seen as one sure way to raise productivity. The humanpower strength has been sliced from 74,436 in March 1990 to 73,664 in March 1991 and 72,600 in 1992. New inductions are now limited to professionals and executives. In Bhopal, executive director S K Handa says "We have the daunting task of bringing down the total work force from around 17,000 to 15,000."
Union leaders seriously question the retrenchment policy, saying it is the task of the public sector to provide employment to a growing labour force. They cite the example of the Bhopal division, where the labour force was actively involved in turning the company around in the wake of communal unrest. The division not only made good the loss incurred -- Rs 35 crore -- but by the end of the year, attained its targeted turnover of Rs 740 crore and even posted a pre-tax profit of Rs 53 crore.
While these plans and programmes suggest BHEL is a company with futuristic goals and targets, the mood of the management is clearly to fight out the immediate crisis and "wait for the market to determine how we go about doing it."
However, free enterprise does not guarantee success. And, though the company can mark out a clear turf in which its competitiveness is ensured, can the bolt of lighting that is BHEL's logo be etched permanently on India's infrastructure map? Or, will it just be a flash in the pan?
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