industial sickness new

8/2/2019 Industial Sickness New

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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


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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 suchfinancial 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 .


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Classification of Industrial Sickness

Genuine Sickness

Incipient Sickness

Induced sickness / Manmade Sickness


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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 & finishedgoods

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.


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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-equityratio

Does not earn a reasonable return on investment


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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


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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


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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


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Labor problems Feeble marketing skills

Fraudulent practices

Wrong location Mistakes in recruitment & training

Excessive overheads

Over-estimation of demand


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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) Lack of Experience

b) Improper financial management

c) Time & cost overruns

d) Technological factorse) Wrong assessment of the market


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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


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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


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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


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The necessary knowledge should be imparted to the entrepreneurs inthe 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 withinnovative product or services


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Government Measures for Rehabilitation & Revival of Sick Industrial Unit

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)


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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


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