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PARLIAMENT OF RAJYA SABHA

DEPARTMENT-RELATED PARLIAMENTARY STANDING COMMITTEE ON INDUSTRY TWO HUNDRED AND TWENTY FIFTH REPORT

ON

THE REVIVAL AND RESTRUCTURING OF HINDUSTAN MACHINES TOOLS LIMITED

PERTAINING TO

THE MINISTRY OF HEAVY INDUSTRIES AND PUBLIC ENTERPRISES (DEPARTMENT OF HEAVY INDUSTRY) ______

(PRESENTED TO THE RAJYA SABHA 3rd AUGUST,2011)

(LAID ON THE TABLE OF THE LOK SABHA ON3rd AUGUST,2011)

RAJYA SABHA SECRETARIAT NEW DELHI

3rd AUGUST, 2011/ SRAVANA, 1933 (SAKA)

PARLIAMENT OF INDIA RAJYA SABHA

DEPARTMENT-RELATED PARLIAMENTARY STANDING COMMITTEE ON INDUSTRY TWO HUNDRED AND TWENTY FIFTH REPORT

ON

THE REVIVAL AND RESTRUCTURING OF HINDUSTAN MACHINES TOOLS LIMITED

PERTAINING TO

THE MINISTRY OF HEAVY INDUSTRIES AND PUBLIC ENTERPRISES (DEPARTMENT OF HEAVY INDUSTRY) ______

(PRESENTED TO THE RAJYA SABHA 3rd AUGUST, 2011) (LAID ON THE TABLE OF THE LOK SABHA ON 3rd AUGUST, 2011)

RAJYA SABHA SECRETARIAT NEW DELHI 3rd AUGUST, 2011/SRAVANA, 1933 (SAKA)

CONTENTS

1. COMPOSITION OF THE COMMITTEE …………………………………(i)

2. INTRODUCTION …………………………………………………………….. (ii)

3. REPORT

4. MINUTES ……………………………………………………………………………….

COMPOSITION OF THE COMMITTEE (Date of Constitution 31 st August , 2010)

RAJYA SABHA

1. Shri Tiruchi Siva — Chairman 2. Shri G. Sanjeeva Reddy 3. Shri Bhubaneswar Kalita 4. Shri Ashk Ali Tak 5. Shri K.B. Shanappa 6. Shri Natuji H. Thakor 7. Shri S.P. Singh Baghel 8. Shri Nandamuri Harikrishna 9. Dr. Vijay Mallya 10. Vacant

LOK SABHA

11. Shri Suvendu Adhikari 12. Shri Badruddin Ajmal 13. Shri N.S.V. Chitthan 14. Shri Bansagopal Chowdhury 15. Shri Sabbam Hari 16. Smt. Poonam Veljibhai Jat 17. Shri Ram Singh Kaswan 18. Shri M. Krishnaswamy 19. Shri Pakauri Lal 20. Smt. Ingrid Mcleod 21. Shri Bharat Ram Meghwal 22. Shri Devendra Nagpal 23. Shri Gorakhnath Pandey 24. Shri Kishanbhai V. Patel 25. Shri B.Y. Raghavendra 26. Shri Ramsinh Rathwa 27. Shri Arjun Charan Sethi 28. Shri Raju Shetti 29. Shri Suresh Kashinath Taware 30. Shri Ijyaraj Singh 31. Smt. Putul Kumari

SECRETARIAT Shri S.N. Sahu, Joint Secretary Smt. Sunita Sekaran, Director Shri Vimal Kumar, Joint Director Shri Anil Kumar Saini, Assistant Director

(i)

INTRODUCTION

I, the Chairman of the Department-related Parliamentary Standing Committee on Industry, having been authorized by the Committee, hereby present this Two Hundred and Twenty Fifth Report on the Revival and Restructuring of Hindustan Machines Tools Ltd. pertaining to Ministry of Heavy Industries and Public Enterprises (Department of Heavy Industry).

2. The Committee held detailed discussion with the Management of Hindustan Machines Tools Ltd and received inputs for this Report.

3. I thank the Ministry of Heavy Industries and Public Enterprises (Department of Heavy Industry) for furnishing the valuable inputs during the meetings.

4. The Committee in its meeting held on 29 th July, 2011 considered and adopted the report.

Tiruchi Siva Chairman Department -related Parliamentary Standing Committee on Industry

New Delhi 29 th July, 2011

(ii)

REPORT

Establishment of Hindustan Machine Tools in 1950s constituted a giant step to regenerate our economy by ensuring accelerated supply of quality machines to different segments of industry. A well acclaimed public sector unit the HMT set the trend for efficient management and proven capability for greater productivity. Being part of the structure of mixed economy, it was seen as a role model of excellence, dynamism and business efficiency. Our first Prime Minister during whose tenure the HMT was established cited the example of HMT to underline the success of public sector enterprises and drive home the point that the public enterprises had to be run with greater efficiency and profit.

2. Our national leadership had comprehensive understanding that machine making assumed centrality in augmenting our economic and industrial strength. As the private sector during the formative period of independence lacked expertise, economic resources and necessary infrastructure to engage itself in the mammoth task of nation building, the founding fathers of our country conceived the scheme for providing leadership role to the public sector in creating conditions for our growth and development. The setting up of HMT represented that grand vision to transform India along modern lines and create machine building capability for economic renaissance and industrial progress of our country.

3. The vitality of the public sector for the revival of our economy and taking it forward has been glowingly acknowledged. The doyens of private sector recognized that the strength and capability of Indian economy so carefully nurtured by the public sector enterprises enabled them to scale new heights of economic efficiency and progress. It is in this broader historical perspective that the role of public sector enterprises in general and HMT in particular has to be understood.

4. There was a time when HMT commanded the admiration of the entire nation. The watches produced by the HMT made deep impact on popular imagination and a countrywide craze for such watches made them popular and well-accepted. The HMT products very well 1

represented the slogan ‘Be Indian buy Indian’. The late Prime Minister of India Smt. Indira Gandhi described Hindustan Machine Tools as one of the outstanding industrial enterprises of our country and referred to it as a model of dynamic management not only in the public sector but also in the public and private sectors combined. Diversifying from the core activity of manufacturing of machine tools the HMT expanded its scope by proving its worth in many sectors. The wide variety of its products be it machine tools, tractors, watches and capital goods were extensively used in many areas of our economy including the defence sector. It had the record of declaring highest dividend in any public sector during 1960-61 and registering its net profit on a year to year basis. As a flagship public sector enterprise, it scored enviable prestige and esteem and was looked upon by people with admiration.

5. The inevitable onset of economic reforms in our country unleashed entrepreneurial potential of our economy in a more deregulated and competitive atmosphere. The HMT as a public sector enterprise found it hard to cope up with the challenges of a reformed economy which mandated greater efficiency, prudent use of human resources, primacy of competition and buoyancy of business activity. In such a new economic setting which required deployment of more skills and high degree of competition, the HMT found itself wanting. It started declining from its much acclaimed position as a profit making company to a loss making enterprise.

6. The Department-related Parliament Standing Committee on Industry studied the HMT Ltd. during its visit to in January, 2011 and interacted with representatives entrusted with the responsibility of running this enterprise. The Committee was pained to know that the HMT which soared high as a public sector enterprise had to come to such a sorry state of affairs due to several factors which include the callous mismanagement of its affairs and the indifference of the Government to accelerate its revival.

7. The vision of the HMT Ltd. sets the target to emerge as an engineering company of repute, providing best of products and services with contemporary technologies, to suit customer needs. As far as its mission is concerned, it has set itself the goal to serve the country’s strategic sector through development of high technology products and to achieve sustained growth and profitability. 2

8. Most of the subsidiaries of the HMT are far from the aforementioned vision and mission. The HMT holding company and its subsidiaries are in such a sorry state of affairs. It is now in an unenviable position of being referred to Bureau for Reconstruction of Public Sector Enterprises. The approved a plan in July 2000 for its turn around by restructuring the HMT Ltd. and converting into five separate subsidiary companies. The HMT Ltd. was considered as a holding company with tractor manufacturing as its core activity. The other subsidiaries are HMT Machine Tools Ltd., HMT Watches Ltd., HMT Chinar Watches Ltd, HMT Bearing Ltd. and HMT International Ltd. The Government holding in the company is 98.88 per cent.

9. It has got two joint ventures, namely, SUDMO HMT Process Engineers (I) Ltd. and Nigeria Machine Tools Ltd. with the equity participation of 50 per cent and 15 per cent, respectively.

10. The Committee was given to understand that the HMT suffered decline due to numerous factors which include the vertical integration of plants and assembly ancillaries. Other reasons for its recurrent loss are increasing social overhead cost and ageing plant & machinery. Its net worth eroded considerably. According to the study conducted by Center for Monitoring Indian Economy its return on net worth declined from -4.42 in March 2008 to -4.94 in March 2010.

11. The Committee is extremely pained to know that the Government of India adopted a casual attitude in not taking measures for modernization of plant and machinery of HMT to face the increasingly competitive market. The Committee feels that the management of HMT will have to be held accountable for not keeping the company technologically and economically viable. There are many public sector enterprises which have successfully adjusted to a highly commercialized business environment and registered profit. A company like HMT which is engaged in machine tool sector has a wider market for supplying machines which are in growing demand across the economic segment.

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12. India has a vast and expanding market for machine tools. Its volume is estimated to be approximately Rs.8000 crore out of which the HMT Machine Tools is able to capture Rs.200 crore only and rest of its is shared by private players and import from foreign countries.

13. Our economy is growing at a reasonably higher rate. It is also expanding and diversifying. Therefore, the demand for machine tools is bound to grow up. It is in this context that concerted efforts have to be made to tap this vast market by manufacturing such tools within our country. HMT Machine Tools has to show greater dynamism and business competence to increase its share of market for its products.

14. It can be done by employing better skills and market management. The Department of Heavy Industry referred the loss making HMT Machine Tools Ltd. and HMT Bearings Ltd. to the BIFR. At a time when the Government of India is acknowledging the resilience of public sector enterprises as a major factor for withstanding the financial crisis and at a time when the Government is reasonably happy with the performance of the PSEs, it is important that special and focused attention be given to the revival of HMT which can be made robust and forward looking.

15. The summary record of the proceedings of hearing held on 12 June 2008 before the BIFR bench consisting of Shri A.K. Goswami, Chairman, BIFR and Shri K. Cherian Varghese, Member throw light on the scheme for the revival of the Hindustan Machine Tools. The Bench while taking note of the general consensus in respect of the revival scheme observed the following:

“… there is general consensus in respect of the rehabilitation scheme. … attrition of employees on account of unrevised and low salary levels is an issue which deserves the attention of the Government of India. The Board recognizes that the company is not able to afford a wage revision with its present financial position but the issue of competent and technically qualified employees leaving the company will make the company less competitive. The company has to 4

improve its productivity and earn more to pay more. Banks charged interest rates up to 5% above BPLR on the plea that the company was not declared sick. The purpose of the Reserve guidelines to charge interest at BPLR only from sick companies is to provide relief to such units. Because of the provision of SICA, the newly formed company could file its reference-only after 5 years of its incorporation although the net worth was negative from the beginning and consequently the company was sick. A very technical and narrow interpretation of a sick company under RBI guidelines from the date of reference to BIFR and charging high rate of interest by banks may not be in the interest of revival of the company. The company has been honouring the commitments to banks in spite of its tight financial position by borrowing from Government of India. GOI has made much sacrifice in respect of the dues of the company. In these circumstances the Bench is inclined to retain the stipulation in the rehabilitation scheme requiring banks to charge interest at BPLR rate only from 1.4.2000.”

16. The Committee noted the following reasons for the sickness of HMT Machine Tools in particular and HMT as a whole. • Working capital constraints • High interest burden • Old plant & machinery not upgraded • High costs due to vertical integration • Compression of demand since 1996-97 • High competition from imports due to liberalization • Used machines allowed for imports • Non-availability of level playing field • Surplus manpower in non core areas • Non induction of fresh technical talent

17. The Committee takes note of the fact that the revival package for HMT Ltd. was `880.80 crore. The BIFR observed that the revival plan proposals of the Hindustan Machine Tools Ltd. is viable.

18. It is observed that a part time Chairman and acting Managing Director of the HMT Machine Tools Ltd. has been appointed on 1 January 2011 onwards.

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19. With the appointment of a part time Chairman and acting Managing Director, the Machine Tools unit has registered improved performance which is certainly heartening. The Committee understands that the following steps have been taken to bring about a transformation in the working culture of the Hindustan Machine Tools. These are:

I. Change of mindset and attitude of the employees II. Aggressive marketing and customer responsiveness III. Enforcing financial discipline IV. Inculcating Team Spirit V. Making the team believe that HMT-MTL can be turned around

20. Out of the five factors outlined above, three of these concerning change of mindset and attitude of the employees, inculcating team spirit and making the team believe that HMT-MTL can be turned around are intangibles which are as important as tangible factors such as technology, financial discipline and marketing strategy. The fact that some improvement has taken place by suitably employing both tangible and intangible factors prove the point that a lot can be done by strategic decision making and guaranteeing independence and autonomy to the people entrusted with the responsibility of making viable and profitable.

21. The Committee could see the hopeful trends in the Order Book position for the Machine Tools for the period 2009-10 and 2010-11.

Order Booking Rs `Crores 2009-10 2010-11 April-December 102 147 January-March 64 89 Total for the year 166 236

22. The figures in the above table are self explanatory. The Order Booking position has registered significant increase from `166 crore in 2009 to `236 crore in 2010-11. The Committee has been informed through a separate communication that the order booking of the company in 6

the month of March 2011 alone has been `58 crore which, it is said to be, “an all time high till this date”.

23. Similarly, the sales of the Company has been increasing. While the figure for sales for January-March 2009-10 was `49 crore, it was `69 crore for the same period during 2010-11.

24. This increasing trend of high order booking and sales has generated confidence in those who run the Company to pitch for higher annual gross sales of `340 crores which possibly would fetch marginal profit.

25. The Committee warmly welcomes the measures taken by the HMT Machine Tools Limited to revitalize it. The hope nursed by the management of the Company that it would achieve a positive turn around due to higher order booking and higher sales augurs well for its future. In fact with the growth and expansion of Indian economy there is going to be greater demand for machinery. Such demand assumes critical significance in the context of India emerging as a global manufacturing hub. The original purpose behind the foundation of the HMT Machine Ltd. was to provide machines to the diverse sectors of our economy which have a great potential to grow. Now that our growth rate is impressive and manufacturing sector substantially contributes to our onward march as a major economic player in the world, it is important for the HMT Machine Tools Limited to tap the expanding market.

26. The Committee, therefore, strongly recommends the Government for supporting the HMT Machine Tools in every way for its commercial viability and profitability. It compliments its top management for changing the attitude of the personnel of the Company and inculcating among them the much needed team spirit and understanding that they can once again make it commercially attractive, financially sound, technologically up to date and profitable. The recent initiatives ushered in by the management , it is hoped, will go a long way in creating a work culture which will help the Company to stand on its own strength and make a name for itself through its quality product and high levels of customer satisfaction. 7

27. The Committee after careful perusal of the papers submitted to it has understood that the subsidiaries of HMT are not able to function with efficiency and effectiveness due to lack of independence and autonomy which are key to the success of any company in the highly competitive and globalised environment of our time.

28. The Committee, therefore, recommends that the subsidiaries must be given due independence and autonomy. If all the time these subsidiaries remained dependent on holding company, their own progress would be retarded by virtue of the fact that these will not be able to take faster decision for manufacturing products and doing business.

29. The Committee recommends that the changes that have taken place after the appointment of the part time Chairman and acting Managing Director must be taken note of by the Department of Heavy Industry.

30. The Committee is of the view that one person well acclaimed for his or her expertise in engineering and technological fields and with adequate experience of administering enterprises may be appointed as CMD for the HMT and its subsidiaries as a whole. He must be given full responsibility and independence to make decisions for making the HMT Machine Tools and other units more competitive and commercially relevant.

31. Except the HMT International, all other subsidiaries of the HMT have not been doing well in the field of business and as a result have suffered losses.

32. The Committee was informed that the HMT suffered sub-optimal performance due to following reasons:- • 6500 employees were given Voluntary Retirement Scheme during 2000-02 by raising `469 crores through external borrowings as 10 year GoIG Bonds resulting in:

• Interest outgo of `186 crores leading to erosion of working capital. • Retention of talent & attraction of new talent continues to be a constraint due to non revision of pay scales.

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• Investments were not made for upgradation of manufacturing facilities & product technology. • Further, in 2003, the age of superannuation was reduced to 58 years resulting in accelerated separation of several senior and key executives.

33. However, the Company prepared a plan for turning around its performance in 1998. It included restructuring of manpower, organization and of course restructuring of its debt on financial liabilities. By perusing the literature provided to the Committee, it was understood that the turn around of the Company could not be made due to shortage of working capital, enormous liabilities amounting to `374 crores and failure to dispose of non-performing assets. Apart from these reasons, the Company failed to take up issues such as product development/diversification, technological upgradation and plant modernization owing to shortage of resources. In spite of the measures taken to revive the Company, its performance level plummeted. It is rather painful to note that the Company which was doing so well before the advent of economic reforms had to come to such a sorry state of affairs resulting in its downfall. One of the predominant factors behind the failure of the Company is the absence of modern technology and machinery. As a public sector enterprise, it had to function within certain rules and regulations. In fact, there are many PSEs which have proved their worth in spite of the constraints faced by them. The Committee feels that the utter failure of the HMT to come to terms with the liberalized economic environment arrested its productivity and contributed to its decline. The apathy of the Government in responding slowly to its problems further compounded its economic woes.

34. The Committee takes heart from the revival plan which aim at addressing the challenges faced by the HMT. The background paper made available to the Committee outlines the key features of the revival plan which include: • Upgradation/renewal/modernization of plant and machinery • Introduction of new products/processes/technology in line with market requirements • Settlement of Overdue long term liabilities on account of the funds borrowed for Voluntary Retirement Scheme (VRS) separations along with the interest burden

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• Reduce the large scale attrition of professionals and skilled force through implementation of revised pay-scales • Recruit fresh talent through payment of attractive salaries on par with other PSUs as most of the persons recruited had resigned within a year or two on account of low salaries • Rationalize manpower, increase outsourcing, vendor development, etc.

35. The Committee understands that the common refrain of all the subsidiaries of the HMT are early approval of revival plans by the Government, permission to implement 1997 Pay Scale wages and timely payment of salaries to the employees. Without going into the details of the statistics concerning net worth, profit after tax, turnover and other basic factors which determine the resilience of a company in a business environment, the Committee strongly feels that most of the subsidiaries can be revived and their economic viability assured by giving the leadership role of the HMT to a visionary technocrat who can combine both business acumen and social purpose. It is recommended that in case of HMT Ltd. which manufactures tractors the possibility of establishing joint ventures for this purpose may be explored. In case of HMT Bearings Ltd. it is recommended that a strategic partner may be tapped to carry forward its business and expand it. It is also proposed that infusion of more finance to it may be examined.

36. It is rather sad to note that the employees of most of the subsidiaries are getting pay scales which were determined in early 90s. It is all the more shocking to know that Senior Managers of the Company are drawing salaries which are less than that of the workers who due to accumulation of their annual increments get more salaries than the officers at the managerial position. This is an anomaly which demotivates those who are asked to play leadership role in the Company. The Committee understand that there are some sections of employees who did not draw their pay for several years. They pathetically pleaded before the Committee for payment of their salaries so that at least they would feed their families. In fact, the long pending pay/wage revision has to be put on fast track without which both the Company and employees would face hardships. In the absence of attractive pay scales the Company has lost valuable human resources to other private players. 10

37. The Committee was told that the pay revision could not be affected in 1997 except in case of the HMT (International) due to the huge loss suffered by all the HMT Companies. The Committee strongly recommends the Government to look into this problem and take measures to address it.

38. The Committee also takes note of the fact that the retirement age for the employees of the Company is 58 years whereas in many other PSEs it is 60 years. Due to the fixation of retirement age at 58 years, the Company is in a disadvantageous position to retain its skilled work force and Managers beyond that age. This problem has been further compounded by the absence of fresh recruitment of new personnel. All these issues require serious and focused attention from the Department of Heavy Industry and Government of India. It is recommended that the retirement age may be increased to 60 years.

39. It is painful to note that revival plan is under the consideration of the Government of India for almost half a decade. The slow pace at which the Government tries to consider the revival plan is indicative of its mindset in making our public sector undertakings viable from the point of view of business proposition. The Government’s commitment to strengthen public sector enterprises does not sound convincing the way it is treating the revival plan of the HMT group of companies.

40. During its presentation before the Committee, the HMT provided a road map on strategies to achieve its targets. While the HMT (International) which is a profit making subsidiary requested the Government to make it a nodal agency for projects of the Ministry of External Affairs, it wanted to appoint representatives in more countries to pursue its business activities. It also desires to scale up its business two hundred crores in two years and focus attention on high value machine tools/turn key projects. The Committee feels that its future road map and strategies are achievable. The success of the HMT (International) is indicative of the fact that range of the products of the HMT Companies such as machine tools, watches, tractors, bearings, general engineering

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products, industrial commodities software, etc., have a market outside the country. This means if the subsidiaries are made viable and profitable it can get more business abroad. Therefore, the Committee strongly recommends for the revival of the HMT and its subsidiaries.

41. The Committee feels that it is worth focusing attention on HMT Watches Ltd. which had manufacturing units in Bangalore, Tunkur and Ranibagh. There is yet another subsidiaries HMT Chinar Watches, which is located in Srinagar. These two subsidiaries, HMT Watches and HMT Chinar Watches, are engaged in producing mechanical and Quartz Watches both for ladies and gents. These two subsidiaries also are manufacturing special and souvenir watches. It is rather sad to note that most of the products of these Companies are sold in CSD canteens and through other institutional arrangements. The public enterprises survey analyze the performance of the HMT watches and stated the following:- “The Company registered an increase `5.70 crore in total income during 2009-10 which went up to `18.27 crore in 2009-10 from `12.57 crore during 2008-09. The net loss of the company increased to `168.35 crore, an increase of `4.29 crore over the previous year’s loss due to absence of trade channel, higher interest burden, broken supply chain and also due to truncated cash cycle. Institutional sales contributed 35 per cent of total sales.”

42. In a fiercely competitive market where private players are offering attractive watches to the consumers, it is very difficult to promote HMT watches which once enjoyed the confidence of the customers across the country. It has been proposed that in the present day economic environment watch making is no more considered as a viable proposition as small scale industries find it cheaper to get imports from abroad at a lesser cost than the one manufactured in India. The management of HMT Watches Ltd. is of the opinion that HMT watches still has a brand value in the market. It is hoping that by manufacturing only quartz watches it can take advantage of the brand image of HMT watches still persisting in the mind of the consumer. The Committee cautiously welcomes the hopeful proposition of the management of the HMT watches Ltd . It, therefore, recommends for the examination of this hopeful proposition and

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accordingly see if HMT watches can be made economically viable and attractive for the customers in the present day globalised market situation. One possible option is to tap the customers in the villages of India by adopting innovative marketing strategies. This would mean reaching out to them through many other agencies such as post offices or some of the public sector banks which may display HMT watches in remote areas through their branches and take a commission for doing so. This would be quite a different approach in relation to the approach involving establishment of showrooms in urban areas and cities. Usually it would be very difficult to compete with private players who have catered to the customers in towns and cities by providing them with new models of watches.

43. The revival and restructuring of the sick public sector units receive priority attention of the Government. However, the Committee notes with concern that the inordinate delay on the part of the Government in taking up the revival package will further sink the loss making PSEs to a pitiable state of affairs. The public sector undertakings have to remain tuned to the new market situation. On 27 June 1961, in a Letter to the Chief Ministers, first Prime Minister Pandit Jawaharlal Nehru, who described the public sector enterprises as the commanding heights of economy, had written that, “The old idea that profit making is a private concern and not a public concern has to be discarded completely. Our public enterprises have to be run with the greatest efficiency and the greatest profit.” He made those insightful comments in the context of the remarkable success achieved by the Hindustan Machine Tools of Bangalore. The Department of Heavy Industry, the HMT as a whole and the Government of India has a historic responsibility to once again revive the HMT to its past glory. All concerned must respond to the call of duty to achieve that goal. The Committee recommends that the Government of India must expedite the revival process of HMT taking serious note of the special concern for the industry and employees on the whole.

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