Slices of misrepresentation

Slices of misrepresentation
Pradip Baijal

And now, the official position on the disinvestment of Modern Food Industries

This is with reference to the article titled, `Modern bread and postmodern cake', by Arvind N. Das (IE, March 29).

The views expressed in the aforesaid article are not based on facts in so far as Modern Food Industries (India) Limited (MFIL) is concerned. The factual position of this matter is as follows:

Modern Food Industries (India) Limited, originally known as Modern Bakeries (India) Limited, was incorporated in 1965. The main objectives of setting up of this company were: popularising wheat consumption in non-wheat consuming areas and setting up modern bread production facilities with emphasis on hygiene and providing wholesome nutritious bread at reasonable prices. It has wrongly been mentioned in the article that breaking of the monopoly of Britannia Industries Limited was the objective of setting MFIL up.

In 1977-78, the government reserved the bakery industry for the small-scale sector and hence the company could not undertake any further expansion in bakery products. The production of chapatis, kulchas and nans, which were launched on experimental basis in Delhi sometime in 1975-76, was stopped way back in 1978 because of lack of demand and unviability.

Over 1977-85, the company undertook product diversification programme including launching of `77' Cola, `77' Orange, Lime Lemon Tingler. The company also took up proposals to set up pineapple juice concentrate plant at Silchar, Assam and fruit & vegetable pulping plant at Bhagalpur, Bihar. Besides these three units, viz., fruit juice bottling plant at Delhi, solvent extraction plant for rapeseed, cottonseed and mustard oil extraction at Ujjain and a maize mill at Faridabad were also transferred to MFIL. All these activities were loss making due to high overheads, obsolete technologies, inadequate capacities or non-availability of proper raw materials, and so on.

Over the period from 1991 to 1994, the company restructured its operations by closing down two totally unviable units, viz. Solvent Extraction Plant at Ujjain and abandoning the PJC project at Silchar, and restructuring of three units. Under the restructuring exercise the beverage operations relating to the carbonated drinks were abandoned in 1992. The restructuring also consisted of conversion of the Roller Flour Mill, Faridabad, and FJBP into plants to manufacture Supplementary Nutritional Foods (SNF), for supply to the various State Governments for their social welfare schemes.

In August 1996, the company along with other public sector enterprises was referred to the Disinvestment Commission. The Commission recommended 100 per cent disinvestment of government in MFIL citing several reasons, including: i) MFIL is a non-core sector company.ii) Under utilisation of production facilities. iii) Large workforce and relatively low labour productivity compared to its competitors. iv) Poor pubic image as compared to organised competitors, especially in Northern markets.

However, the government decided to disinvest up to 74 per cent of its equity in MFIL mainly to retain some control on the management to ensure protection of the employees' interest.

The process of disinvestment in MFIL, which took a long period of more than two years was undertaken in the most systematic and transparent manner.It is totally baseless to even suggest that the government could have got a better price that the one received. The government empanelled valuer carried out the requisite task of evaluating the land and building assets of the company. The value of Rs 109 crore as assessed by the Government Valuer was in accordance with the market price which actually is meaningless because the land of MFIL is on a lease basis having numerous conditions and specific purpose of allotment which forbid selling or any other use.

The total valuation of MFIL as per the bid of Hindustan Lever is computed at Rs 165.47 crore which is 1.51 times higher than the one assessed by the government valuer. In any case share valuation is always based on value of business and not on asset value. The sale was at a value much higher than the value of business assessed by advisors. It is accidental that the value was also higher than value of assets. Thus, there was sound economic reasoning to accept the offer.

The writer is secretary, Department of Disinvestment