In this essay we will discuss about:- 1. Meaning and Incidence of Industrial Sickness 2. Causes of Industrial Sickness 3. Consequences.
Essay # 1. Meaning and Incidence of Industrial Sickness:
Industrial sickness refers to that state of industry when industrial units continue to accumulate perpetual losses and thus become economically unviable propositions. The symptoms of industrial sickness include failure to pay statutory liabilities like the Provident Fund, ESI contribution and failure to pay timely installments of principal and interest on loans taken from financial institutions and through public deposits. Increase in inventories with a large number of slow moving items, high rate of rejections of goods manufactured, low capacity utilisation and frequent industrial disputes are among the causes of industrial sickness.
Incidence of Sickness in Indian Industries:
The problem of industrial sickness has assumed quite serious dimensions over the past years. Some of our traditional industries like cotton textiles, jute and sugar have a large number of sick units. Even some units in the non-traditional industries like engineering and chemicals have also fallen prey to this disease. Cement and rubber industries too suffer from industrial sickness.
Apart from the large and medium sized industrial units, many of small scale enterprises suffer from industrial sickness. Region-wise, Maharashtra and West Bengal show the highest incidence of industrial sickness.
The number of sick and weak industrial units (both the large, medium and small scale industrial units), which was 24,530 in 1980 with an outstanding bank credit of Rs.1808 crores, went up to 2.23 lakh in 1991 and the outstanding bank credit locked up in them was high of Rs. 10768 crores. The position further worsened and at the end of March, 1998, the number of sick industrial units stood at 2.37 lakh and the outstanding bank credit against them increased to Rs. 13787 crores.
Besides locking up of funds, which could be otherwise fruitfully utilised, the phenomenon of industrial sickness tends to aggravate the problem of unemployment and also creates adverse climate for further industrial growth.
In order to provide a focal point to handle the task of rehabilitation of such units, the Industrial Reconstruction Corporation of India has been reconstituted as the Industrial Reconstruction Bank of India (IRBI).
The IRBI is now the principal agency for the reconstruction and rehabilitation of sick industrial units. The approach towards rehabilitation is very selective and only potentially viable units are taken up for rehabilitation.
Under the Sick Industrial Companies (Special Provision) Act, 1985 (SICA), the Government of India has set up a Board for Industrial and Financial Reconstruction (BIFR) in January 1987 that became operational on May 15, 1987.
The BIFR determines the preventive, ameliorative, remedial and other measures which are required to be taken in respect of sick industrial companies and takes steps to assure expeditious enforcement of these measures.
Essay # 2. Causes of Industrial Sickness:
Industrial sickness is not something that suddenly befalls an industrial unit; it is a gradual crippling of an enterprise that manifests in the form of slowdown of sales, reduced production, erosion in capital base, difficulties in honouring loans and bills and interest payable, piling up of excessive inventories and even difficulties in meeting wage bill and salary expenses.
All such features of sickness set on the enterprise slowly over time and finally culminate in industrial sickness. The factors that bring about such problems of sickness may be external and beyond control of the enterprise or internal to it, or a combination of both.
Some such factors are:
(A) External Factors:
(i) Decline in market demand for the goods produced by the industrial unit due to a shift in taste and preference of the consumers or due to their reduced purchasing power consequent to the crippling effect of inflation, unemployment or market recession. Or shift in demand to substitute products.
(ii) Decline in market share due to entry of new firms, increased competition and emergence of excess capacity in the industry as a whole and its individual production units.
(iii) Excessive government control, regulation and restrictions on product mix, industrial location, price controls, minimum wage laws and inability to retrench excessive workers have all contributed to high cost of production and the consequent losses due to inability to sell at market prices.
(iv) Increased costs of production due to such bottlenecks as inadequate power supply, non-availability of raw materials at reasonable prices, costly finance etc. The producers fail to sell their high cost products at the prevailing market prices and hence incur continuous losses.
(v) Government levies such as high excise duties, higher other taxes and charges by the government have also added to the cost of production. Such taxes and levies could not be recovered from the market by raising product prices as upward revision of per unit prices has, in most cases, led to fall in demand, lower sales revenue and the consequent losses.
(B) Among the Internal Factors Contributing to Industrial Sickness are:
(i) Poor maintenance of plant and machinery, lack of technological upgradation and modernisation, non-replacement of worn-out machines on time.
(ii) Lack of managerial and financial expertise, unjustified and excessive expenditure on overheads, improper use of materials and manpower, incompetent financial planning, absence of quality control and improper coordination of various production and distribution processes have all led to high cost production.
(iii) Wrong choice of location, technology or product coupled with frequent labour disputes, strikes, lockouts and non-cooperative attitude of trade unions lead to lower production and higher per unit cost and thus reduce economic viability of the industrial unit.
These are the more general causes of industrial sickness; they all contribute to the malady though the intensify and combination of these factors may differ from one enterprise to another. In many cases it could be the demand shrinkage while in others it is primarily labour unrest.
It could be a combination of both. In some cases natural disasters like fire, accident, etc. could be the cause while others may get sick due to inadequacy of funds or unwillingness of management, modernise industrial units.
Irresponsible management, willful manipulation of funds, policy of declaring excessive dividends without retaining adequate reserves, lack of sensitivity and alertness on the part of management to heed to repeated signals about ill health of the industry and thus not taking any timely and strong remedial measures, all contribute to industrial sickness.
Irresponsible or unscrupulous managements may borrow excessive funds at uneconomic interest rates without regard to their ability to make payment of interest or repayment of loans on time has landed many enterprises into the lap of sickness.
Essay # 3. Consequences of Industrial Sickness:
It is obvious that sick industrial unit, unless they are revived and restored to health by sound financial measures and managerial rejuvenation, are likely to close down sooner or later. In the case of closure of such units, whose number may continue to swell year after year, the worst affected sections are the working classes, i.e. the labourers working in these industries who face unemployment and the loss of means of living.
Industrial sickness also represents the work of capital resources locked in them, which by no means is desirable in a capital poor country. Industrial sickness also spreads from one industry to another through input-output relationship and thus threatens to engulf many industries.
It generally creates on adverse investment climate for the domestic as well as the foreign investors. The government certainly cannot ignore the adverse consequence of industrial sickness on the economy and thus adopts many preventive as well as rehabilitative measures to put these industries back on the rails.