CHAPTER 12
MINISTRY OF HEALTH AND FAMILYWELFARE

Hindustan Latex Limited

The Company incurred a cash loss of Rs.9.88 crore due to selection of an obsolete technology.

Board of Directors of Hindustan Latex Limited (Company) approved (May 1990) a proposal for setting up a blood bank unit at a capital outlay of Rs.3.44 crore for manufacturing of 2 million pieces of disposable blood bags per annum, which was approved (March 1991) by the Government of India. As against available superior technology in the international market, only indigenously available technology and license arrangement for the project was considered by the Company, which was tied up (January 1991) with National Research Development Corporation (NRDC).

While implementing the project, the estimates were subsequently revised in March 1992 to Rs.7.00 crore. The Company further realised (May1993) that the technology provided by the NRDC was outdated, as it was at least 9 years old and the cost estimates were also unrealistic. Accordingly, the project proposals were revised again and the cost estimates were increased to Rs. 9.54 crore which was approved by the Ministry in February 1994.

The Company could commission the plant in September 1995 after a delay of 38 months from its original envisaged date. By the time the Company came out with its product (September 1995) the market scenario had already changed. As in the intervening period from 1992-1995 four other manufacturers had came up with same product and the only previously existing Company in the business also doubled its capacity, making the total installed capacity to 7 million pieces in the country as against the projected demand of 4 million pieces. Keeping in view the usage restrictions of the product for which 65 per cent off take was only by the Government institutions, the Company as an late entrant in the market was, thus, compelled to keep its production at low levels besides, dispose of its products to make sales at lower prices during all these years which resulted in loss of Rs. 9.88 crore upto March 2001.

While, considering the revised proposal of the project (February 1994) the Expenditure Finance Committee (EFC) of the Ministry of Health and Family Welfare had noted that the Company was already facing commercial marketing problems in its other diversified projects and advised the Company to strengthen its marketing set up and explore the possibility of entrusting marketing to a well established organisation, but no efforts in this direction were made by the Company.

The Company accepted (October 1998) that the blood bag unit as a separate entity had made losses in the initial stages, which was not uncommon for a new venture and further stated that they were hopeful of achieving a three fold increase in production in three years time and of achieving better results in future years. The Ministry endorsed (December 1998) the views of the Company.

However, the optimism of the Company and the Ministry was not based on the ground realities as working results of the unit for the next three years also revealed that there were persistent losses since commissioning of the unit and cumulative losses stood at Rs.9.88 crore (March 2001) resultantly, entire outlay on the project was completely eroded, due to the failure of the Company to:

1. identify the latest technology before taking up the project;

2. implement the project within stipulated time due to which the project costs increased and which gave opportunity to other competitors to come up and capture the market share; and

3. ignore the advice of the EFC to strengthen its marketing set up.