LOUDER RINGS: MTNL + BSNL

It will create India's largest telecom company with close to 57 per cent of 87 million subscribers. Only player with a national telecom licence across circles and services. With a turnover of Rs 38,083 crore, it will be India's seventh largest corporate entity. But its size is likely to draw concerns of a level playing field from private players. TURNOVER: RS 38,083 crore NET PROFIT: Rs 7,126 crore Chances of merger: WITHIN A YEAR

Privatisation and closure aren't the only ways of reducing the number of PSUs in India. If the UPA Government is to be believed, merger is another and probably a better way of having fewer and bigger PSUs. Ever since it came to power, the buzz around PSU mergers has been getting louder. Reports of IFCI merging with IDBI to create a Rs 78,000 crore financial behemoth, SBI amalgamating all its seven subsidiaries, telecom giants BSNL and MTNL becoming one company or a possible merger of Air-India and Indian Airlines have appeared every now and then. But the true worth of a merger, like the true value of a privatisation, lies in what it does to the company, the industry and above all the customer. Does it make the company more efficient, the industry more competitive and the customer more satisfied?

The actual trigger for merger will vary from sector to sector. Take banking for example. There are 27 public-sector banks, four non-scheduled commercial banks and 196 regional rural banks. Yet only SBI figures among the top 200 banks in the world. Mergers have happened, but they were mostly crisis driven, not strategy driven-like the bailout of the Global Trust Bank through its merger with the Oriental Bank of Commerce. The Government is now waking up to the need to consolidate. SBI may soon be merging all its subsidiaries. Says K. Ratnakar Hegde, executive director, Union Bank of India: "We must have the global size to survive and grow in this globalised world."

BANKING ON SIZE: UBI + BOI

A merger will make it the second largest commercial bank in the country after the State Bank of India. Yet, it will be small. SBI will be 2.5 times bigger. Citigroup is 27 times bigger. Also, the merged entity will have only 4,582-or 6.7 per cent-of the estimated 68,000 bank branches in the country. TURNOVER: Rs 1,43,175 crore NET PROFIT: Rs 1,720 crore Chances of merger: WITHIN A YEAR

One proposed merger that makes most sense is of BSNL and MTNL. Right now, BSNL-India's largest telecom player-is not present in the two most lucrative markets of Delhi and Mumbai. Conversely, MTNL can operate only in these two cities. This is when private players are controlling airwaves across the country. This has not only created problems for the two PSUs but also for their customers. Though the two PSUs are supposed to offer seamless connectivity, it does not work in reality. Often, BSNL cell phones are not able to "roam" in Delhi and Mumbai. Merging the two PSUs will create an entity that will have a national footprint and will offer seamless connectivity across services throughout India. It will also help the PSUs put up a stronger fight against private players.

In the oil sector, creating a global scale company could be the key driver behind the proposed mega mergers. In the deep-pocketed world of oil, compared with giants like British Petroleum-Amoco (revenue $232.6 billion) and Exxon Mobil ($213 billion), Indian biggies like ONGC (2003-4 revenues of Rs 32,180 crore or $7 billion) and IOC (2003-4 revenues Rs 1,18,523 crore) look like pygmies. Globally, oil companies have gobbled up smaller firms to create megacorps that are vertically integrated right from oil exploration and refining to retailing. Straddling the entire spectrum gives them the size, the economies of scale and the cushion to squeeze out profits from every segment of the business.

"We will encourage PSU bank mergers to help them grow." P. CHIDAMBARAM, FINANCE MINISTER

"The MTNL-BSNL merger is likely by mid-2005." DAYANIDHI MARAN, COMMUNICATIONS MINISTER

ON A BIGGER FLIGHT:     INDIAN AIRLINES + AIR INDIA

The merged entity will be India's largest airline with a 37 per cent market share of the total air traffic. It will fly close to 10 million passengers a year within and outside India. Only airline in India with full-fledged domestic and international flights. But will have bloated workforce with 33,977 staff. Jet has 7,000. TURNOVER: Rs 10,100 crore NET PROFIT: Rs 50 crore Chances of merger: UNLIKELY SOON

So instead of the oil majors stretching themselves thin, as is the case right now, it is logical for them to merge. For example, merging BPCL, HPCL, Gail and ONGC as well as IOC and Oil India would create two vertically integrated biggies with revenues (2003-4) of $35.4 billion and $30.7 billion.

Airlines is a different story. A combination of confused policies and bad planning has stymied both Indian Airlines and Air-India for years. And now with domestic airlines permitted to fly international destinations, running one public airline for domestic flights and another for international doesn't make much sense. Air-India complains that Indian Airlines is eating into its marketshare in the most busy West Asian destinations. Bringing them together would help strengthen the two companies and provide them a good hub-and-spoke model to cater to their customers. Says V. Thulasidas, chairman, Air-India: "It is for the Government to decide. If the merger happens it will give the airlines the size and flexibility of operations."

BIG TO BECOME BIGGER:    ONGC + HPCL + BPCL + GAIL

The merger will make it India's largest oil company with more than 50 per cent of the industry's turnover. Will control a little under 50 per cent of the 22,500 petrol pumps in the country. Yet, it will be a pygmy in front of Exxon-Mobil which is six times bigger. TURNOVER: Rs 1,60,716 crore NET PROFIT: Rs 13,166 crore Chances of merger: TO TAKE TIME

Desirable as many of these mergers may be, none is going to be easy to execute. Labour issues, ministerial inertia and party politics will protract if not spoil many attempts. "Theoretically my answer to PSU mergers is a big yes. But rationalising staff, cost structures and bringing efficiency will be a huge task," says Deepak Kapoor, ED, PricewaterhouseCoopers. It is unlikely that some of the difficult and unpopulist issues like bloated workforce and issues of operational efficiency will be tackled well. Says Omkar Goswami, founder and chairman, CERG Advisory: "Merging two weak PSUs simply to create a bigger balance sheet is no solution. Two bads don't make a good."

These mergers will also throw up other bigger issues. With the government often being the player as well as the regulator in many of these sectors, private-sector players often complain that there is no level playing field. The telecom sector is a case in point.

If not handled well, the mergers can create lasting troubles. Says Subir Gokarn, chief economist, Crisil: "It could entrench the PSUs in a way that no future government will find it easy to divest." For the moment though, the merger plan seems like a master stroke for a government trying hard to marry the Left's concerns with its commitment to PSU reforms.

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