Concept Of Industrial Sickness The Term Industrial Sickness refers to the phenomenon of industrial units losing their financial

health & closing down causing loss of production .

It can be classified as :
1. Actual Sickness

1. Potential sickness/ Incipient Sickness

Definitions of Industrial Sickness Sick Industrial Companies (Special Provisions Act), 1985 A sick industrial undertaking means, an industrial company (registered for not less than 7 yrs ) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth & has also suffered cash losses in such financial year immediately preceding such financial year . State Bank of India (SBI) A sick unit which fails to generate an internal surplus on a continuous basis and depends for its survival upon frequent infusion of external funds. Industrial Development Bank of India (IDBI) A unit may be considered sick if it has defaulted the payments of three installments .

Classification of Industrial Sickness Genuine Sickness Incipient Sickness Induced sickness / Manmade Sickness

Signals of Industrial Sickness Decline in capacity utilization Shortage of Liquid funds to meet short term financial obligations of creditors & to meet statutory obligations. Inventories in excessive quantities of raw materials, goods-in-process & finished goods Non-submission of data to banks & financial institution Irregularity in maintain bank accounts Frequent breakdowns in plant & equipment

Decline in the quality of product manufactured dues such as provident fund (PF), sales tax excise duty , Employee State Insurance (ESI) etc.

Decline in technical deficiency

Frequent turnover of personnel in the industry

Inability to pay interest on borrowing or non-payement of installments Inability to pay creditors on time Incapacity to produce as per schedule Does not maintain certain financial ratios like current ratio, debt-equity ratio Does not earn a reasonable return on investment

Symptoms of IS
Persisting shortage of cash

Deteriorating financial ratios

Widespread use of creative accounting

Continuous tumble in thr share prices

Frequent request to banks & financial institutions for loans

Delay & default in the payment of statutory dues

Delay in the audit of annual accounts

Decline in production

Causes / Reasons fro IS 1}External Causes Radical changes in Govt policies Changes in consumers preferences Cheaper variety of products available in the market Inadequate & ultimately availability of inputs like raw materials, power, transport, & skilled labor Lack & lowering of demand for the product Recessionary trends

Frequent industrials & labor unrest Increase in raw materials cost Shortage of financial resources especially working capital Natural calamities like earthquakes, drought, floods etc Lack of infrastructure facilities

2] Internal Causes

Faulty planning Inappropriate technology Financial problems Incompetence Mismanagement in functional areas

Labor problems Feeble marketing skills Fraudulent practices Wrong location Mistakes in recruitment & training Excessive overheads Over-estimation of demand

According to V.N.Nadkarni. Some industrial units are born sick, some achieve sickness & some have sickness thrust upon them

1. Sickness at the inception stage (Born Sickness)

a) b) c) d) e)

Lack of Experience Improper financial management Time & cost over runs Technological factors Wrong assessment of the market

2. Sickness due to internal causes (achieved sickness)

a) b) c) d)

Mis-management Unwarranted expansion & diversion of funds Lack of proper inventory mgmt Poor industrial relation

3. Sickness Thrust upon by external causes a) b) c) d) e) Government Polices Credits Squeeze Shortage of raw materials Lack of adequate transport facilities Shortage of power

Consequences / Effects of IS 1. Financial loss 2. Loss of employment 3. Industrial unrest 4. Harm to investment 5. Wastage of Scarce Resources 6. Loss of government revenues

7. Lack of competitiveness
8. Adverse impact on relates units

Remedial Measures to overcome IS The identification & detection of sickness at the incipient stage first & foremost measure to detect & IS For identifying sickness at an early stage appropriate yard sticks need to be involved & developed To avoid social disorder labor problem should be solved . Measure of a large no. of sick unit will be a welcomed proposition

Sick units must be allowed to closed

Step should be taken up to rehabilitative weak units

 A separate divisions in board for industrial & financial reconstruction (BIFR) should be opened it to deal with sickness in SSI The Rehabilitations programs for sick small units consist of only financial measures , However other problem like managerial marketing power raw materials should be attainted to in the rehabilitations programs The Govt of India & RBI should requested to direst commercial banks . And financial institutions to provide information on sickness to the agencies like BIFR implementing the rehabilitations programs

 The necessary knowledge should be imparted to the entrepreneurs in the different financial areas through the training programs like the EDP In a market oriented economy SSIs must put greater emphasis on pragmatic planning of their function & discover new markets with innovative product or services

Government Measures for Rehabilitation & Revival of Sick Industrial Units Sick industries policy,1978 Sick industries policy 1981 Sick industrial companies act , 1985 Reserve Bank of India Assistance by SFCs Services by Technical Consultancy Organizations(TCOs)

Boar of industrial & finance reconstruction (BIFR)

Industrial Reconstruction Corporation of India (IRCI)

 Commercial Banks

Income tax Relief

Margin Money Scheme

Excise Relief
Single window Scheme

State Level Inter-Institutional Committees (SLIICs)

Working Group on Rehabilitations of Sick units