Calcutta, May 24: Hindustan Motors today suspended production at its Bengal plant, capping years of haemorrhage but marking a standout moment because of the reason stated and the post-election timing.
The maker of the Ambassador car, the king of the licence-raj road that became a commoner when the economy opened up, has halted work at its Uttarpara facility not because of labour unrest — the usual suspect in Bengal — but because of economic reasons.
“The promoters of the company have been funding losses for several years by divesting some of the business units and also monetising some investments. The company’s efforts are falling short of the large liabilities that have been accumulated,” the C.K. Birla-owned firm said. It also admitted there was “no adequate demand for the company’s vehicles”.
Shutdowns driven by financial compulsions are not common in Bengal and in several parts of the country, where successive regimes have put social obligations above painful but unavoidable steps that businesses may be compelled to take.
The absence of a cogent exit policy not only impedes investments but also hurts workers in the long run as it will be too late to reskill them. The workers suffer, sometimes for no fault of theirs, as business decisions crucial to the survival of companies are taken by the management. Hindustan Motors’ Uttarpara plant has 2,600 employees.
The plant has been bleeding for years (see chart) and an employee said it had not paid salaries after November.
Yet, the work-suspension order was issued only on Saturday, a little over a week after the general election result established that the political climate in the country has undergone a dramatic change. In Bengal, too, the ripples were felt, leaving the party ruling the state with little say at the Centre.
No one would say that the rise of a seemingly pro-industry dispensation at the Centre might have emboldened the Hindustan Motors management to now take the step it might have taken long ago. But the election coincidence was commented upon by several industrialists who spoke to this paper but did not wish to be quoted.
Perhaps, the industrialists were indulging in wishful thinking — using the opportunity to articulate their demand for a free hand in taking such unpopular decisions — but some also pointed out that this is the second instance of a manufacturer suspending production after the election was over.
Engineering firm Jessop did so on May 15, a day before the BJP swept to power in Delhi as predicted by several exit poll results, though the situation cannot be strictly compared with that of Hindustan Motors. Jessop cited labour unrest for the suspension of work, though product obsolescence and lack of management skills to turn things around were also responsible.
For Hindustan Motors, the road was turning bumpier every month. The Uttarpara factory was making around 150 vehicles a month while the asking count to stay afloat was around 1,500.
As of April 30, 2014, the Uttarpara plant has accumulated outstanding liabilities of Rs 94 crore, including tax dues, salary and wages, electricity bill, land revenue and banking obligations.
The number of Ambassador cars and Winner, a light commercial vehicle, the plant has sold has plunged to 2,439 in 2013-14 from 5,574 in 2008-09.
The Left Front government had allowed Hindustan Motors to sell surplus land for Rs 280 crore but even then the management could not turn the plant around.
In the suspension of work notice, the company informed its employees that the plant was posting an operational cash loss of Rs 7 crore every month and, at present, has no further assets that can be sold.
Bengal labour minister Purnendu Bose said the government had not been officially informed and the company had picked the weekend for such a move, when the offices of the labour department are shut. He said he had instructed the deputy labour commissioner in Serampore to try and organise a meeting by Tuesday.
“I have informed the finance minister and he too is very worried. Let’s see what transpires at Tuesday’s meeting and then we will chalk out our course of action,” he told The Telegraph this afternoon. Finance and industries minister Amit Mitra was unavailable for comment.
Chittaranjan Nayak, a 40-year-old employee working in the maintenance department of the Uttarpara plant, said: “I received the news of suspension of work today early morning and rushed to the factory. The employees have not received wages for the past six months. The company had last paid the salary of November 2013 in March this year. This suspension would leave my family and myself in great financial stress.”
A city-based dealer of Ambassador cars, which are mostly used as taxis and government vehicles in Bengal, said that there could be a shortfall of cars from July onwards unless the issues were resolved within a month. He added that servicing and availability of spare parts could also take a hit.
Hindustan Motors has two plants — one each at Uttarpara and Pithampur in Madhya Pradesh. The Pithampur plant largely focuses on components and the Wheeler while the Uttarpara facility made Ambassadors. A Chennai facility has been hived off, which is profitable and makes the Mitsubishi range of vehicles under a licence agreement.
The suspension of work at Uttarpara also highlighted a long-standing demand from the industry to have a reasonable exit clause. The new Companies Act has kept a provision for closure but the implementation has always been a challenge.
“Like there should be ease of setting up a business, there also should be ease to exiting a business responsibly, when the situation so demands. What we need is an enabling labour law framework that allows workers to be retrained so that they remain employable even after the closure of a business. In fact, upskilling is important even in the case of continuation of employment in the interest of growth and productivity enhancement,” said Chandrajit Banerjee, the director-general of CII.