Questions of quality

Print edition : April 04, 1998

The public sector Hindustan Latex, the country's leading manufacturer of contraceptives, is in a crisis following the curtailment of government orders for prophylactics.

IN industrially backward Kerala, Hindustan Latex Limited had stood out as a rare success story among public sector undertakings (PSUs). Over the years, this Central PSU, the leading manufacturer of contraceptives, registered an impressive growth and diversified into other products such as intra-uterine devices (IUDs), oral contraceptive pills, surgical gloves and blood bags.

However, Hindustan Latex began to plunge into a crisis after September 1997 when the Union Ministry of Health and Family Welfare refused to buy a major share of the condoms it produced. Renuka Chowdhury, then Union Minister of State for Health, said in February 1998 that her Ministry had taken the action because there were doubts about the quality of the product.

Officials of the company, however, alleged that the Ministry had singled out Hindustan Latex for this treatment while it had raised the share of purchases from three private companies whose brands were also found to be wanting in quality in tests conducted by the Central Indian Pharmacopoeia Laboratory (CIPL) in Ghaziabad. The CIPL rejected only 80 per cent of the condom samples from Hindustan Latex while rejecting 100 per cent, 90.9 per cent and 59 per cent of the samples submitted by the three private companies, they said.

The Hindustan Latex factory in Thiruvananthapuram.-C. RATHEESH KUMAR

Chairman and Managing Director G. Rajamohan told Frontline that Hindustan Latex had received the ISO-9000 certification for the manufacture and sale of condoms and IUDs. According to him, the company's products have been cleared for sale in over 60 countries. It has got the 510 K certification from the Food and Drug Administration, U.S., the NF Mark from the official French laboratory, the CE Mark (European certificate), and the South African Bureau of Standards certification, to name a few. Its products also have the approval of agencies such as the United Nations Population Fund (UNFPA) and the World Health Organisation (WHO). Hindustan Latex had been awarded contracts by the WHO for the supply of condoms, Rajamohan said.

Why then was the company's condoms rejected in the CISL tests? Rajamohan said: "It is not Hindustan Latex products alone that were rejected. At a meeting convened by the Ministry in December 1997, it was decided that a re-test should be conducted on the same samples of all the manufacturers. These tests are being conducted by the CISL and by another government laboratory. The results will be out soon and we hope they would set at rest any doubts that have been raised about the quality of the company's products."

The Government placed orders for 707 million pieces of condoms, worth a total of Rs. 7 crores, for 1997-98. Of these, Hindustan Latex received an order for 205 million pieces, while the remaining pieces were to be supplied by private manufacturers. This was the context in which Renuka Chaudhury explained how over a period of time doubts had been expressed about the quality condoms produced by Hindustan Latex.

There is stiff competition in the domestic condom market. India has a total installed capacity for the production of 2,000 million pieces annually and a demand for 1,300 million pieces. Indian manufacturers also compete with a range of imported brands. Hindustan Latex, which resorted to direct marketing recently, has only a 9 per cent market share.

As Hindustan Latex was established to meet the bulk of the requirements for the Government's family planning programme, it has been almost totally dependent on government orders for condoms, IUDs and contraceptive pills. The company has an installed capacity to produce annually 608 million pieces of condoms (the Government bought 80 per cent of the production), 40 lakh pieces of Copper-T and 30 million cycles of contraceptive pills. The company has been affected on several occasions when the Government showed an inclination to favour private manufacturers.

The company's troubles began with the liberalisation of the economy, in the wake of which the Central Government abolished the policy of preferential pricing for PSUs. Uncertainty prevailed after March 1997, when the Government policy of purchase preference to Central PSUs for goods and services (if the price quoted by the units was within 10 per cent of the lowest bid), was due to expire. This policy, introduced in 1992, had been operative for three years and was then extended up to March 1997. Despite repeated requests for a further extension, the Government acted only seven months later, in October 1997, by extending the period for purchase preference until March 31, 2000; it also gave retrospective effect to the decision with respect to cases under its consideration, including that of Hindustan Latex, from April 1, 1997.

Hindustan Latex officials and union leaders have alleged that the extension of the purchase preference to PSUs was what prompted Renuka Chowdhury to say that Hindustan Latex condoms were of poor quality. They said that the Minister had initially reduced the Government's purchases from the company without any reference to quality. They alleged that her "sole motive was to help the private sector".

In a report published in The Indian Express on February 19, 1998, the Minister was quoted as saying that the decision to reduce the orders with Hindustan Latex was taken "after hard investigation and based on the feedback she received on poor quality condoms from NGOs, sex workers and State Governments." She said that her priority in the national health programme was to prevent births and the spread of Acquired Immuno Deficiency Syndrome (AIDS). She said: "My priority is not to keep afloat a PSU which is manufacturing sub-standard condoms and thereby putting the entire health programme in jeopardy."

G. Rajamohan, Chairman and Managing Director of Hindustan Latex.-C. RATHEESH KUMAR

She was also quoted as saying that when she began work in the Ministry in June 1997, she found that the files on Hindustan Latex were "full of inquiries and reports about poor-quality condoms". According to her, two former Health Ministers, A.R. Antulay and Salim Sherwani, had made notes in the files about the poor quality of Hindustan Latex's products. She is also reported to have told the interviewer that the transactions done by some top company officials had come in for scrutiny by the Comptroller and Auditor General and the Central Vigilance Commission and that some deals were still being inquired into by the Central Bureau of Investigation (CBI).

Renuka Chowdhury also made the serious allegation that the CBI inquiry had revealed a conspiracy by top Hindustan Latex executives to sell rejected condoms to various State welfare organisations. "By pumping rejected condoms into circulation, Hindustan Latex could be causing more births or HIV (Human Immunodeficiency Virus) cases," she was quoted as saying.

A senior company official told Frontline: "It is clear why a Minister, who slashed the orders to Hindustan Latex and has shown a preference for the private sector, comes up with the question of quality at this juncture. She had to find a reason after the Government's October decision to extend the purchase preference until March 2000. It is significant that she has preferred to remain silent about the quality of the brands produced by private sector manufacturers."

Representatives of the Action Council of Hindustan Latex employees described the Minister's action as "baseless and malicious". They alleged that her only objective was to malign a public sector unit whose products had, after rigorous tests, been certified by international agencies as being far superior to those produced by private companies.

A spokesman for the Action Council said: "Although the Minister was aware that the Government was about to order an extension of the purchase preference system with retrospective effect from April 1997, by the time the orders were issued in October 1997 a major part of the orders had been gifted away by the Minister to companies in the private sector."

Packing prophylactics inside the factory.-C. RATHEESH KUMAR

The controversy has raised important questions. Is the Central Government strangling a public sector unit to favour private sector manufacturers? Is the Government's recent refusal of orders the only reason for the crisis in Hindustan Latex? And how safe are the condoms manufactured in the country, both in the public and private sectors?

Union leaders and employees told Frontline that the Minister's allegation was not true. In the past, some unions have raised questions about instances in which Hindustan Latex condoms sold to private companies were returned or were "lost in transit". There were also instances in which condoms from Hindustan Latex were returned by international buyers. A major allegation raised before the Kerala High Court by a small (unrecognised) union is that there is "a set pattern of events in which goods of high quality are sent by Hindustan Latex and inferior quality goods, not manufactured by the company, are sent back as 'rejects', thereby causing a huge loss to the company."

Renuka Chowdhury too had hinted at a "possible conspiracy" by senior Hindustan Latex executives in "forging documents to show the transfer of 14.92 million pieces of condoms from the company's unit in Thiruvananthapuram to Belgaum and in selling rejected condoms to various State welfare organisations."

A senior executive said: "By raising a smokescreen of unsubstantiated allegations based on events from the past, the Minister is trying to hide her inclination towards private manufacturers. The CBI had conducted an inquiry in 1996. If no action has been taken so far, does it mean that the allegations are true? And how does it justify the Ministry's sudden refusal to buy from Hindustan Latex?"

Union leaders and company officials deny that the company tried to sell rejected condoms in the domestic market. "Anyone with some knowledge of the system will not make such an allegation. Every piece of condom is tested and rejected pieces are shredded and sold as waste," said a senior official at the the company's condom factory at Peroorkada in Thiruvananthapuram.

He, however, said that there were instances of complaints that condoms sold under the Government of India's brand name "Nirodh" were of poor quality. "Since Hindustan Latex was the major supplier to the Government, the brand Nirodh is identified with the company. The truth is that condoms manufactured by private agencies are also sold under the brand name and this could be one reason for the bad name that the company has attracted."

There was stiff opposition from all the unions against recent moves to disinvest 74 per cent equity of Hindustan Latex. The unions said that every year about 540 million contraceptives were distributed either free of cost or at heavily subsidised prices. With privatisation, the prices of contraceptives would shoot up, and the country's family welfare programme itself would be defeated, they said.

When Antulay was Health Minister, the company faced the major problem of reduced offtake by government agencies. Such a drastic reduction in government purchases led to the closure last year of the Copper-T Plant set up by Hindustan Latex at Aakkulam in Thiruvanantha-puram. The unit had an installed annual capacity of 40 lakh pieces.

Established in 1992, the surgical gloves unit, which has an installed annual capacity of 30 million pieces, has not done well. Since its inception it has faced stiff competition from small-scale manufacturers. An increase in latex prices earlier and a lull in overseas demand also affected the profitability of this unit, which seldom operated beyond 50 per cent of its capacity. The management's efforts to lease out the facility or convert it into a joint venture have not borne fruit.

The company had commissioned a Rs 10-crore plant for the manufacture of blood bags at Aakkulam. The state-of-the-art plant has a capacity of 2.5 million bags a year, but it too has not been doing well.

It will be disastrous for the company if the present crisis in its condom sales is allowed to continue. It is already saddled with a huge inventory because production was not interrupted despite the curtailment of government purchases. Last year the company posted a net profit of Rs. 6 crores and projected a higher figure for the current year. However, the management is reconciled to a steep fall in turnover and an operating loss in the current year.

The condom unit, which was threatened with closure, received a fresh lease of life because of intervention by the Members of Parliament from the State and also Chief Minister E. K. Nayanar. On March 13, in the last days of the United Front Government, Prime Minister I. K. Gujral ordered the Union Health and Family Welfare Ministry to place an additional order of 157 million pieces with Hindustan Latex as an immediate measure. The management and the employees are awaiting the policy of the new Government.

The crisis in Hindustan Latex apart, the serious question regarding the quality of condoms being sold in the Indian market, both by public and private sector manufacturers, remains unanswered. Hindustan Latex officials are reluctant to say why some popular brands were rejected by the CIPL. Instead, they express the confidence that they will come out successful in the re-test ordered by the Ministry at their initiative.

The fact that some private condom manufacturers too have a poor record with respect to quality, has taken the sting out of Renuka Chowdhury's allegations against Hindustan Latex. More significantly, there should have been a serious endeavour to assess the quality of condoms sold in the Indian market.

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