JAIPUR NATIONAL

UNIVERSITY
INDUSTRIAL SICKNESS & SMALL UNITS:CAUSES, PREVENTION, REMEDIES
BY:- ASHISH KUMAR, ABHASH RANJAN, MANISH KUMAR

INDUSTRIAL SICKNESS

Definition of a sick unit is given by Sick Industrial companies act, 1985. According to the act The sick industrial company is a company which has at the end of any financial year accumulated losses equal to or excluding its entire net worth and has also suffered cash losses in that financial year and in the financial year immediately preceding it.

EXPLANATION

Sick industries refer to those units which perform poorly against expected results, incur cash losses for consecutive years, gradually erode the entire net worth and obviously fail to service the debt obligations.

The major point to identify a sick unit

A unit incurring financial loss/not being capable to produce at above break-even point. A unit incurring continuous cash losses A unit having negative equity A unit having excess of current liabilities over current assets. A unit making defaults in payment of principal sums with interest. A unit having low capacity utilization A unit having worsening debt-equity ratio

INDUSTRIAL SICKNESS IN INDIA

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, Textile small steel and engineering industries are being affected by this sickness problem.
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.

MOI data reveals

The highest incidence of sickness Textiles manufacturing (19.6%), Food manufacturing (14.3%), textile manufacturing (8.8%), non-electrical machinery (5.7%) and leather and its products (5.4%).
It appears from the study that small scale industries is at the top (72.5%) in terms of incidence of sickness, followed by medium and large scale industries 19.7% and 4.1% respectively.

Causes of sickness of ssi's

Most of the Indian authors and researchers have classified the different types of industrial sickness under two important categories.

Internal causes for sickness External causes for sickness

Internal causes for sickness

Lack of Finance Bad Production Policies Marketing and Sickness Inappropriate Personnel Management Ineffective Corporate Management

External causes for sickness

Personnel Constraint Marketing Constraints Production Constraints Finance Constraints

REASONS FOR SICKNESS IN SSIs

Production Related Reasons: Faulty Product Mix Acklog of Production Poor Quality of end product Delayed delivery schedule Financial Reasons: Low Profitability Low fund generation Poor liquidity Step Cost structure Lack of financial resources Lack of credit facility Faulty credit utilization Low share value

Market Reasons:
Poor marketing strategy Imbalance between production & marketing Wild market shifts Lack of awareness of consumers preferences Lack of specific market segmentation Poor distribution network Poor market performance Signals of sickness

PREVENTION
Experience indicates that small industrial units fall sick much to the occurrence of external causes while medium and large industries get exposed to sickness largely due to internal causes. Though it would be hardly impossible to eliminate the causes altogether, attempts should be made to undertake measures that would reduce the magnitude of ailment in the industrial units for healthy survival and growth. Viewed in this context, the following measures may be suggested to prevent industrial sickness:

PRIVENTION

Macro-economic Policy changes Sub-Sector wise Long term Policy Implementation of the Announced Polices Development of Small Industry Sector Rationalization of Tariff Improvement of Infrastructural Facilities Monitoring of Saturation in Particular Industry Sub-sector Development of Linkage Industries Active Support of Banks and Financial Institutions Expansion of Market Base through Increased Exports Use of Predictive Models Facilitation of Enabling Environment

Remedies
Majority of sick units is retrievable in order to tackle the problem of sickness from the two angles the role of three agencies assumes significance:
a) The government

b) Financial institutions and

c) The industry associations

A) The Role of Government:

If the number of units in the country has increased some 10 times since independence and if we have diversified industrial structure with wide spread entrepreneurship the credit for this largely belongs to government. Second area where the government can be helpful is industrial licensing. The very existence of licensing and monopoly regulation legislation implies that there is a stampede to to get in when ever licensing is liberalized for an industry or an economy as a whole

B) The Role Of Financial Institutions:

The following are the ways by which sickness can be prevented by financial institutions :

Continuous monitoring of unit Careful project appraisal Professional institutional response to units problems Required systems at client units Incentives to units to remain healthy The Role Of Indutry Associations

THANK YOU