Industrial Sickness

University:
California State University, Northridge
Course:
BUS 104 | Introduction to Business
Academic year:

2023
Views:

375

Pages:

2
Author:

JJIssac

INDUSTRIAL SICKNESS  Introduction Sickness After Commencement Industrial sickness refers to the poor financial health and operational underperformance of industrial units. It manifests itself more clearly in market economies through losses, closure etc. In India, liberalization led to increased competition and a rise in industrial sickness since the late 1990s. There are differing perceptions on what constitutes sickness - losses, negative net worth, loan default etc. RBI defined it as cash losses for specified period and poor financial ratios. As per the Sick Industrial Companies Act, it is accumulated losses exceeding net worth. Common Symptoms and Stages Common symptoms are non-payment of dues, high inventories, low-capacity utilization, frequent disputes etc. Units can be sick from birth, achieve sickness after functioning or have it thrust upon them. Sickness at Birth Causes for sickness at birth stage:   Lack of experience, faulty planning and project selection Inadequate funds and financial management Incorrect demand assessment and changes in market conditions poor  Time and cost overruns during project implementation  Wrong location without supporting infrastructure  Outdated technology, substandard machinery Some reasons for achieved sickness:  Poor management inexperience, dissensions, lack of professionalism  Unwarranted expansion diversion of resources  Defective management  Failure to modernize and adapt to changing environment  Poor labour relations affecting morale and productivity and inventory External Causes External sickness: factors contributing to  Shortage of power, coal, oil etc affecting production  Inadequate availability of raw materials  Infrastructural bottlenecks like transport  Tight credit conditions due to government policies  Excessive controls on product mix and prices Magnitude of Sickness A large number of units are sick, especially in the small-scale sector. Many are non-viable. Institutional Framework  RBI monitors incipient sickness when net worth falls by 50%  Sick Industrial Companies Act provides for BIFR to revive viable units  Measures include financial restructuring, change of management, M&A, sale of assets etc.  Winding up recommended if unviable Conclusion Sickness has many causes and needs early detection and cure. The institutional framework aims to revive viable units and close non-viable ones efficiently.