Modi seeks to revive India’s ‘zombie factories’, not abandon them
The strange tale of British India Corporation is an example of how political patronage and India’s strict labor laws keep publicly owned companies going long after they are insolvent.
Now Prime Minister Narendra Modi, who campaigned in this year’s general election on a promise of “minimum government, maximum governance”, is preparing to invest more taxpayer money in ailing state-owned factories in a bid to turn them around.
The government has set up a committee to examine ways sick public companies can be resuscitated, including using cash reserves from profit-earning state firms to provide lifelines to the loss-making ones, according to officials in New Delhi.
Since winning India’s first parliamentary majority in three decades in May, Modi has not been as ambitious as his supporters would like in introducing policies many say are needed to revive an economy growing at its slowest rate in nearly a decade.
At least 20 loss-making companies owned by the central government have stopped production or have almost no activity yet still pay staff full salaries, according to an official at the Board for Financial and Industrial Reconstruction, the agency charged with expediting restructuring or liquidation.
Indian ministers are reluctant to close these zombie companies because it will lead to job losses, which in turn could cost them votes.
“When Modi came to power in Gujarat he was determined to revamp the public sector companies, a majority of them were making losses,” said P.K. Laheri, the former top bureaucrat in Gujarat who served as chairman of some of those state companies.