View from Delhi: U.S. bankruptcies taking toll on some Indian firms

The recent spate of bankruptcies of big multinational companies in the U.S. and elsewhere is going to have a big impact on business in India.

The collapse of Enron has, of course, led to many complications as the company had invested heavily in India, especially in the power plant at Dabhol.

The $3 billion project has now become nobody's baby and Indian banks and financial agencies that had lent money are wondering what to do with the rusting plant.

Long before Enron's collapse, there were moves to sell off Dabhol Power Co's equity of $800 million to Indian power companies, but nothing came of it.

Tata Power and BSES, both of them Mumbai-based, were involved in negotiations, but are no more in the picture. BSES, which is now controlled by Reliance Industries, has said that it would be interested in taking up Dabhol's equity, but only at half the total face value, or about $400 million.

There are now moves to sell off the entire power station, but that may not be easy. With the state government unwilling to pay more than Rs2.50 per unit, no private company, not even Reliance, would be prepared to sink so much money into the ailing company.

The second company that stands to lose heavily is VSNL, a telecom company recently acquired by Tatas, that has an exposure of about $90 million to WorldCom, the U.S. company that collapsed last week.

VSNL receives around $200 million a year as part of its tariff arrangement with WorldCom. There is now a big question mark on WorldCom's dues to VSNL.

All this is happening at a time when the business scenario in India is anything but rosy. Hopes of a normal monsoon have been dashed as the dry spell continues.

The government has finally conceded that the drought is likely to make a big hole in GDP to the tune of a minimum of one percentage point, reducing GDP growth to 4.5 per cent from the estimated 5.5 to 6 per cent.

Industrial output may be down to just three per cent. Companies like Reliance are saying that they will try and make up the loss through exports of their surplus oil products, if there is a fall in domestic demand.

Demand or no demand, the rush for petrol pumps is so heavy that the government has a big scam on its hands.

The oil companies had been permitted to set up over 3,000 petrol pumps and agencies for kerosene and LPG, but instead of the allotment being left to oil companies, the oil ministry decided to hand it over to special boards headed by judges, who were appointed by the oil minister.

The result is that most of the new allotments have been cornered by persons close to the oil minister and his party (BJP) colleagues, through a complicated network of middlemen also close to the oil minister and his friends.

Something like Rs20 billion has apparently changed hands under the table.

The scam raised such a big stink that the prime minister himself had to step in and cancel all allotments made in the last two years. But the allottees, many of whom are genuine, are threatening to take the matter to court, since they stand to lose a lot of money they shelled out to secure the lucrative deals.

They are finding, not for the first time, that oil can be a very sticky business, even when you have paid for it through the nose!