Thursday, November 5, 2009

Liquidation of Hetauda Textiles Factory

Finally, the Nepalese government has decided to liquidate a dead textile factory, which the Maoist government tried to revive believing that despite its utter lack of competitiveness, it could produce and supply textiles while creating artificial demand from the security agencies. It was populist and bad idea that only added deficits.

Reversing the Maoist government´s policy, the government has decided to send Hetauda Textiles Factory (HTF) into liquidation, citing that the revival of the dead industry was not possible.

The cabinet meeting held on Wednesday took the decision to this effect.

“We had to admit to the cabinet that past attempts to revive the failed and long-closed industry only added financial loss and burden to the government,” said a senior official at Ministry of Industry, disclosing the cabinet decision to

HTF was closed eight years ago after it posted a huge financial loss due to its failure to compete with imported textiles, mainly from India. Prior to the closure, the factory used to consume 1,200 tons of cotton and was employing about 1,200 people.

This is what I wrote when I reviewed the Maoist government's budget on 23 September, 2008:

Demonstrating a socialist manifestation and big planner attitude, the finance minister has adorned the budget with varied slogans and a resolution to revive moribund and sick firms. The promise to inject money and resuscitate state-owned enterprises like Hetauda Textile Mills, Gorakhkali Rubber Industry and Agricultural Tools Factory completely compromises efficiency and productivity in favour of a populist political agenda of creating employment. He has put an upper limit on demand by arguing that government agencies and security forces would consume production from these incompetent companies.

Again, he needs to be given a reminder of how the Soviet Union failed miserably when it embarked on grand and fruitless investment in railways and the manufacturing sector. Corruption and inefficiency thrived as the state-owned companies created illusionary demand, that is, they created their own demand and supply, and rotated the goods and services among themselves, leading to waste of resources in one sector and shortage in the other.