Industrial sickness - Wikipedia, the free encyclopedia

http://en.wikipedia.org/wiki/Industrial_sickness

From Wikipedia, the free encyclopedia

Industrial sickness is defined in India as "an industrial company (being a company registered for not less than seven years) which has, at the end of any financial year, accumulated losses equal to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year".

1 Meaning for people 2 Meaning for companies 2.1 Clauses for Sick Industrial Company 2.2 Exception 2.3 Example 3 Industrial Sickness In India 4 Causes of sickness in small scale industry 4.1 Internal causes for sickness 4.2 External causes for sickness 5 See also 6 References

Main article: Occupational disease Industrial sickness is an umbrella term applied to various things associated with industry that make people ill and cause them to miss work. The solutions will have to be tailored to the specific industry, and only in that way can any real effect be made on improving the health and productivity of the industrial workforce. The key is an aggressive work-up on the health issues for a given segment of the industrial workforce, and usually broken down by type of work (which makes sense). Even as coal miners face overpowering respiratory threats, and foundry and mill workers have to confront major physical threats from large (heavy) quantities of extremely hot materials, each facet of industrial production has its hot-button health issues. Industrial health managers need training and experience identifying and remediating conditions that present major health threats to their respective workforces. Then they can train the rest of management and can teach the workers themselves about the best way to carry out their jobs with minimum threats to their health.

Under the repealed Sick Industrial Companies (Special Provisions) Act, 1985 (the SICA), a moratorium period of five years was given before an industrial company could either embrace sickness or declared to be sick. But under the new dispensation for addressing industrial sickness that is a part of the Companies Act 1956 itself, no moratorium period whatsoever seems to have been given as would be evident from the definition of `sick

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Industrial sickness - Wikipedia, the free encyclopedia

http://en.wikipedia.org/wiki/Industrial_sickness

industrial company' given thereunder:

Clauses for Sick Industrial Company

According to Companies Act, 2002 "`Sick Industrial Company' means an industrial company which has i) The Accumulated losses in any financial year equal to 50 per cent or more of its average net worth during four years immediately preceding such financial year; or ii) Failed to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such company."

Exception
The above definition tell us that, one may say that moratorium period has after all not been done away with if anything, it has been retained at the same level of five years. It is clear that the moratorium period has been completely done away with. For, had the four-year moratorium period been intended that would have been made a common factor for both clauses (i) and (ii). In the event, every industrial company would inevitably and invariably have to press the panic button needlessly in vast majority of cases and a trifle prematurely in others. This would happen because no industrial company can start making profit from year one. Gestation period ranges from a couple of years to a decade.

Example
A power manufacturer has a capital of Rs 100 crore and in the first year it incurs a loss of Rs 50 crore, bulk of it thanks to huge start-up expenses that it is unable to capitalise in his books of account. It would be unfair to brand it sick especially if there is nothing inherently wrong in its business plan and it is sure of turning the corner in a couple of years. One may still contend that on the touchstone of accumulated losses, the moratorium period of five years has been retained. They may buttress their argument by pointing to absence of provisions similar to those contained in Section 43C of the Income-Tax Act which albeit in a totally different context says that if a company has been in existence for lesser number of years, the average figure would be found out by aggregating the total income for the years the company was in existence and dividing the same by those many number of years.

Industrial sickness specially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like cotton, Jute, Sugar, Textiles small steel and engineering industries are being affected by this sickness problem. As per an estimate 300 units in the medium and large scale sector were either closed or were on the stage of closing in the year 1976. About 10% of 4 lakhs unit were also reported to be ailing. And this position also remain same in the next decades. At the end of year 1986, the member of sick units in the portfolio of scheduled commercial banks stood at 1.47,740 involving an out standing bank credit of Rs. 4874 crores.

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Where the total number of large Industries which are sick were 637 units at the end of year 1985 increased to 714 units in the end of next year 1986. Likewise on the other hand the number of sick small scale units were also increased 1.18 lacks at the end of 1985 to 1.46 lakhs at the end of 1986. The bank amount which was outstanding in case of large industries for the same period also increased from Rs.2,900 crores to Rs. 3287 crores at the end of year 1986 Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 at the end of the year 1986. Of the 147, 740 sick industrial units which contains large medium as well as small scale involving the total bank loan (credit) of Rs. 4874 at the end of the year 1986.

The different types of industrial sickness in Small Scale Industry (SSI) fall under two important categories. They are as follows:

Internal causes for sickness

We can say pertaining to the factors which are within the control of management. This sickness arises due to internal disorder in the areas justified as following: a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds. b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on. c) Marketing and Sickness : This is another part which always affects the health of any sector as well as SSI. This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions. d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers. e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.

External causes for sickness

a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area. b) Marketing Constraints: The second cause for the sickness is related to marketing. The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.

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Industrial sickness - Wikipedia, the free encyclopedia

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c) Production Constraints: This is another reason for the sickness which comes under external cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions. d) Finance Constraints: The another external cause for the sickness of SSIs is lack of finance. This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.

1. Industrial Sickness, According to information compiled by. RBI from scheduled commercial banks, as on. March 31, 2001. http://indiabudget.nic.in/es2001-02/chapt2002/chap79.pdf 2. F.M. Scherer and David Ross, Industrial Sickness in Private and Joint Sectors, http://isid.org.in/pdf/wp4.pdf

1. Sick Industrial Companies (Special Provisions) Act, 1985, http://www.adb.org/documents/others/insolvency /local_law_ind_4.pdf 2. http://www.scribd.com/doc/19150346/Industrial-Sickness-of-India 3. An Article on Industrial Sickness from Prof. (Dr.) Dinesh Sharma & Mr. Punit Kumar Dwivedi, Research Scholar, Department of Commerce, University of Lucknow. 4. An article on Industrial Sickness from S. Murlidharan, http://www.thehindubusinessline.in/2004/07/15/stories /2004071500041100.htm Retrieved from "http://en.wikipedia.org/w/index.php?title=Industrial_sickness&oldid=538334249" Categories: Industry in India Business failures This page was last modified on 15 February 2013 at 02:10. Text is available under the Creative Commons Attribution-ShareAlike License; additional terms may apply. See Terms of Use for details. Wikipedia is a registered trademark of the Wikimedia Foundation, Inc., a non-profit organization.

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