Smriti Irani’s NTC changes calculation procedure to show lower losses

Like several Public Sector Units in India, National Textile Corporation (NTC) has been a sick unit for a while. But under the Modi government, its profit and loss statements have witnessed window dressing to show that it is faring better than earlier years. In actuality, it is doing much worse.

NTC changes the rate of asset life span

If one were to look at the operating profit/loss statement of NTC, it would show that in 2014-15, the operating profit loss was ₹246.3 crore; in 2015-16, it was ₹305 crore; in 2016-17, ₹306 crore; in 2017-18, ₹317 crore; in 2018-19, ₹234 crore and for the current financial year, the losses until August is ₹109 crore.

This actually indicates that in the financial year 2018-19, the losses dipped. That simply isn’t the case. In a profit/loss statement, depreciation of the life of machines is included. Earlier, the PSU used to follow the ‘Straight line method’ for calculating the depreciation of machines. This method assumes that the life of the machine is 10 years.

From 2018 onwards, NTC decided to follow a method where the company can arbitrarily decide the life of a machine. NTC has fixed it at approximately 20 years. This has helped the NTC to show lower losses when it has actually multiplied under Irani.

If we were to apply the new method from 2014-15 onwards, the loss would be ₹207.47 crores for that year; in 2015-16, it would have been ₹257.79 crores; in 2016-17, ₹302.3 crores; in 2017-18, it would have been ₹327.82 crores and in 2018-19, ₹345 crores.

Anomalies in purchase of polyester fibre

The National Textile Corporation (NTC) was established in 1968 with a mandate to take over private sick mills and make them healthy via restructuring and modernisation. As a result, NTC had taken over 124 mills and the PSU currently owns 98 mills, of which only 23 mills are functional. Through these 23 mills, NTC produces cotton and polyester yarn and greige cloth (raw fabric).

To produce this yarn, fibre is required and to procure it, tenders must be called according to guidelines issued by Central Vigilance Commission (CVC). However, tenders have not been called for the procurement of polyester fibre despite there being complaints against its quality.

The Central Vigilance Officer had pointed out the anomalies in polyester fibre procurement in 2017. But the matter died down. Then, in 2018, the issue cropped up again.

According to a complaint received by the CVC, it was found that majority of the polyester fibre worth ₹300 crores per year was being procured from a company named Indorama Synthetics. It comes under the Indorama Group of companies founded and run by India-born Indonesian businessman Prakash Lohia. His wife Seema Mittal is the sister of Lakshmi Mittal, who is currently the second richest Indian.

The company has been receiving the contract without a tender for more than 10 years now but no one raised this issue until it was noticed last year.

Instead of supplying single, unattached fibres, Indorama was supplying NTCL C-Grade fibre which meant that most of the material came fused. This meant that wastage would be high and the quality of the finished product would be of low quality which would then have little market value.

Lax administration leads to heavy penalty

Additionally, there have been several lapses from the top management where operational procedures have been overlooked. Due to operational oversights at Pioneer Mills in Coimbatore, Tamil Nadu, around Rs 1 crore was paid as penalty to the electricity board, despite the board giving six months’ notice to NTC to rectify the problem.

The penalty was sought because the mill did not have the harmonics control system which would have ensured that excess power drawn by the mill is not sent back to the grid. Harmonics not only disturbs the power supply of the board but also degrades copper components and leads to overheating of equipment such as transformers and generators.

In March 2018, the electricity company, TANGEDCO, issued a notice to the mill regarding the irregularity in the harmonics (unwanted higher frequencies). Nothing was done to install the system. A tender was called on September 1, 2018, to study the harmonics and the tender was recalled in November due to errors in the tendering process.

However, TANGEDCO, as forewarned, began to charge a penalty of Rs 15 lakh per month from July 2018. And only a year later did the management in Delhi wake up to the reality that almost Rs 1 crore had been paid as penalty. This mill in Tamil Nadu is not the only one which does not have the harmonics control system. Most NTC mills lack them.

No fire-fighting systems

Most NTC mills of them do not have fire-fighting systems in place either. In fact, a tender floated in 2017 by NTC for fire-fighting systems in 20 mills is still pending. This means all the mills are running without complying with Fire and Safety rules.

There has been inaction from the management even though, in February 2018, a fire broke out at a textile mill in Bhopal in Madhya Pradesh. Then, the Bhopal Municipal Area Fire Officer had said that arrangements for fire control in the mill campus were inadequate.