Industrial Sickness – Sick Small Scale Units – Entrepreneurship
In order to clearly understand the concept of industrial sickness we must first understands the difference between a sick unit and a healthy unit.
A healthy unit or healthy industry is one which earns an adequate return on capital invested and is capable of earning profits.
A sick unit or sick industry is an Industry which has become inoperative or an industry which is working at very low capacity.
According to Reserve bank of India, “A sick small scale unit is one which fails to generate internal surplus on continual basis and depends for its survival on frequent infusion of external funds”
According to the Sick Industrial Companies Act, a sick industry is an “Industrial company which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and has also suffered cash losses in such financial year and the financial year proceeding such financial year”
Simply defining, a sick unit is one which incurs heavy cash losses in a particular year and in the opinion of the financial institutions, it is likely to continue incurring losses in the following years.
Symptoms of industrial sickness
Frequent closure of units due to problems of work load, power supply or natural causes.
Frequent break down of machinery and facilities and inability to repair them at reasonable cost and time.
Heavy rejection of goods due to quality problems, blockage of funds for inputs, Work in progress
Increasing cost of production and continuous decline of capacity utilization
Funding problems and inability to pay statutory obligations of various taxes, rent, electricity bills etc.
Frequent turnover of employees
Deteriorating financial ratios
Use of very old machinery and low employee morale
Causes of Industrial sickness
(i) Internal causes of industrial sickness →
Lack of finance
Weak equity base and poor utilization of assets
Inefficient working capital management
Absence of costing & pricing and budgeting
Inappropriate utilization of funds
Lack of Marketing
Faulty Demand Forecasting & Market analysis
Inappropriate marketing mix
Absence of product planning
Wrong Marketing Research
Poor sales promotion and selling efforts
Bad Production Policies
Wrong selection of site, layout, processing
Lack of Plant & machinery
Lack of quality control
Lack of research and development
Under-utilization of capacity
Entrepreneurial incompetence
Lack of knowledge
Lack of innovation
Lack of motivation
Lack of skill
Inappropriate personnel management
Poor wages and salary administration
Bad labour relations
Lack of behavioral approach
Low employee morale
Ineffective Corporate Management
Improper corporate planning
Lack of integrity in top management
Lack of coordination and control
(ii) External causes of Industrial sickness →
Personnel constraints
Lack of skilled labour
Disparity in wages
High employee turnover
Lack of technical or professional skill
Marketing constraints
Liberal licensing policies
Restraint on bulk purchases
Changes in global market scenario
Excessive tax policies
Market recession
Production constraints
Power cuts
Shortage of raw materials
Shortage of power
Shortage of fuel
High prices of inputs
Import export restrictions
Financial limitations
Credit restrains policy
Delay in disbursement of loans by government
Unfavourable investments
Lack of credit facilities
High interest rates on loan
Government policies
Unfavourable government policies
Lack of support from government
Taxation, licensing
Competition
Small scale industries face competition from big industries associated with the trade. Sickness is caused by:
Inability of large industries to give work load to small industries
Inability of large Industries to encourage entrepreneurial
Lack of interest of large industries to uplift or develop sick units
Consequences of Industrial Sickness
Loss of GDP of the country
Decline in production and wastage of scarce resources
The industrial climate becomes non-conducive to industrial development
Prospective investors and entrepreneurs get discouraged
Industrial unrest like strikes, lockouts, unemployment, social unrest etc.
Loss of interest on borrowings by Financial institutions
Loss in Tax revenue of Government
Remedial Measures to Overcome Industrial Sickness
Identifying the sick units at initial stages and avoiding sickness
Merging sick units together
Rehabilitating sick units by solving personnel problems, marketing problems, quality problems etc.
Debt restructuring and infusion of external funds for sick units
Increasing Workers participation in management of sick units
Having a strict control over costs
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