Meaning Of Industrial Sickness

An unit is called sick unit when it has suffered cash loss for one year and there are certain evidences of being so far coming two years. Which as caused substantial imbalance in its financial structure.

Features Of Industrial Sickness

Continuous decline in production and sales Continuous difficulty in making regular payments of raw materials,production overheads,administration overheads. Dependence on external sources for the repayment of short term loan Difficulty in maintaining regular stock of raw materials.

Causes Of Industrial Sickness

External Causes
Decline in demand for the goods and services produced by industrial unit Excessive increase in competition to the extent that share of demand of goods and services produced by industrial unit in total market demand declines substantially. Non-availability of inputs such as raw materials,labour, power etc to the extent that the unit is unable in carrying out production activities.

Causes Of Industrial Sickness

External Causes
Increase in the cost of inputs without corresponding increase in selling price. Excessive government control and restrictions on the quantity and quality of production

Causes Of Industrial Sickness

Internal Causes
Managerial Causes
Lack of Managerial efficiency and expertise. Lack of ability to take right decisions at right time. Lack of integrity and honesty among managerial personnel.

Technical Causes
Wrong choice of plant location Wrong choice of production technology Inability in maintaining the quantity and quality of production. Poor maintenance of plant and machinery

Causes Of Industrial Sickness

Financial Causes
Selection of inappropriate financial structure. Lack of sound financial planning Failure to control the wastage of material and manpower High cost of borrowed funds

Marketing Causes
Failure to make proper demand forecasting Failure in creating market image and consumer loyalty Failure in facing the competition successfully.

Consequences of Industrial Sickness

Decline in Liquidity
A sick unit faces severe problems of liquidity of funds There is shortage of funds in such units even for the payment of essential expenses.

Consequences of Industrial Sickness

Financial Dangers
Adverse effect on industrial production and productivity Adverse effect on savings and capital formation Heavy loss to banks and other financial institutions Loss to investors.

Consequences of Industrial Sickness

Social Evils
Worsening the problem of unemployment Curtailment in the salaries and facilities of employees. If a large unit becomes sick, all the small scale and cottage units associated with this unit faces great difficulty.

Consequences of Industrial Sickness

Under-utilization of capacity
A sick unit is unable in making optimum utilization of its capacity Under utilization of capacity is itself an important cause of industrial sickness.

Measures Taken By Government To Check Industrial Sickness

Tax exemption on merger of Sick Units
If an industrial unit agrees to merge a sick industrial unit It will get certain tax exemptions under Income Tax Act.

Measures Taken By Government To Check Industrial Sickness

Establishment Of Board For Industrial and Financial Reconstruction ( BIFR)
This board was established in January 1987 All the companies whose net worth is eroded fully, fall under the purview of BIFR BIFR will take all necessary steps to detect sick units at an early stage. Appropriate time may be given to sick units for rehabilitation.

Measures Taken By Government To Check Industrial Sickness

Establishment Of Board For Industrial and Financial Reconstruction ( BIFR)
Sick unit may be allowed to merge or amalgamate with other industrial unit Sick unit may be ordered to wind up. Adequate amount of loan may be sanctioned for a sick unit to give it an opportunity to rehabilitate.

Measures Taken By Government To Check Industrial Sickness

Directives Of Reserve Bank to Scheduled Banks
If the sickness is due to internal causes, banks must induce the management of such units to offer concrete proposal for rehabilitation Rates of interest have been modified for rehabilitation package being granted to sick units. There should be proper co-ordination between banks and financial institutions in the formulation and rehabilitation of sick units.

Measures Taken By Government To Check Industrial Sickness

Other Measures
All the directors, managers , employees and workers of a sick unit should join together to chalk out appropriate methods and measures for the rehabilitation of unit. A special fund must be created for modernisation and replacement of machines etc. If it appears that the problem of sickness cannot be solved the unit should be closed as there is no sense of wasting further efforts and resources. Banks and financial institutions must monitor the performance of all the units in which their funds are committed.