India’s government hopes to create a new state-owned trading body by merging three state-owned trading enterprises in an effort to create a company with the financial muscle to compete with large global trading firms. “The idea behind the merger is to create a single big state trading body which can take on global competition,” said a senior official at the commerce ministry official who did not wish to be identified.
The three companies that are to be merged are MMTC Ltd, State Trading Corp. (STC) and PEC Ltd, and the merger is contingent to an approval by the employees and unions of the three companies. The government is hoping to get these approvals and create the larger company by the end of the year. To bring unions on board, the government is promising that there will be no retrenchment.
STC was set up in 1956; MMTC, incorporated in 1963, is the country’s largest international trading company; and PEC Ltd was incorporated in April 1971.
“We are consulting the unions of the three bodies before we decide to take formal approval from the cabinet for merging the three PSUs (public-sector undertakings) into one. The new entity could be set up as early as this year,” said the official.
The commerce ministry wants to merge the companies in keeping with a recommendation made by consulting firm McKinsey and Co. Business Standard reported the merger plan on Tuesday.
Under the terms of the proposed merger, there will be no retrenchment of employees and the highest pay scales among the three PSUs applicable in a certain official grade will be applicable to all. According to an executive at one of the three PSUs, “the salary structure of the three PSUs is by and large the same. There is, however, a marginal difference in perks such as conveyance allowance or house rentals among the three which will not be difficult to implement across the board.” The three firms together employ 3,300 people.
Amarjeet Singh, partner at audit firm BSR&Co, pointed out that no-retrenchment clause would prevent employees from challenging the merger in a court of law. “The merged entity can later introduce a voluntary retirement scheme,” he added.
Commerce ministry officials said consultations with the unions of the three PSUs were likely to be completed within the next two months.
“The common paper (outlining the purpose and structure of the merger) will be circulated to the employees of all the three entities and they will be given a month’s time to respond,” the official at the ministry said.
Trade unions, however, are cautious in their response. According to H. Mahadevan of the All India Trade Union Congress, “the issue is not that there will be no retrenchment of employees. The issue is how the merger will impact the promotion opportunities of the existing workforce. We had earlier opposed the merger of banks since it is not desirable to have a monopoly in the public or the private sector.”