Industrial sickness has become a major problem of the Indian corporate industrial sector.
Of late, it has assumed serious proportions. A close look reveals that there are, at least, five major causes of industrial sickness, viz., promotional, managerial, technical, financial, and political.
The causes of industrial sickness may be divided into two broad categories:
(i) External, and
(i) External Causes:
External causes are those which are beyond the control of its management, and seem to be relatively more important than internal causes.
The external causes which have been identified so far include:
(a) Delay in land acquisition and building construction;
(b) Delay in obtaining financial assistance from public financial institutions;
(c) Delayed supply of machinery by the manufacturers,
(d) Problems related to recruitment of technical and managerial staff;
(e) Dilatoriness on the part of the government in sanctioning licences, permits, etc;
(f) Shortages of basic inputs like power.
Other causes include:
(g) Cost overruns due to factors beyond the control of management;
(h) Lack of demand for products or shift of demand to products of rival firms due to delays in project implementation;
(i) Unsatisfactory performance by collaborators financial and technical; and, last but not the least,
(j) Changes in the policy of the Government relating to movement of goods from one place to another within the country, or the Government’s export-import policy.
(ii) Internal Causes:
Internal causes a are many. The primary one seems to be (i) “lack of experience of the promoters in the line of activity.” The other causes are: (ii) differences among various persons associated with the promotion and management of the enterprise; (iii) mechanical defects and breakdown; (iv) inability to purchase raw materials at an economic price and at the right time; (v) failure to make controls effective in time in case of deficiencies in workings; (vi) deteriorating labour management relations and the consequent fall in capacity utilisation, and, above all; (vii) faulty financial planning and lack of balance in the financial (capital) structure.
It is often observed that many projects are started without making any proper feasibility study. Hardly any long-term view of the future is taken. Often industrial projects are started on an ad hoc basis without gathering much about the expertise and competence neeeded for the purpose.
Causes for industrial sickness are summarised as:
(i) project appraisal deficiencies,
(ii) project management deficiencies; and several external factors like
(iii) shortage of raw materials,
(iv) power crisis,
(v) changes in government policy,
(vi) transport and financial bottlenecks,
(vii) increase in overhead costs, etc.
Marketing problems in the form of market saturation, product obsolescence and demand recession are considered to be the other factors responsible for industrial sickness.
As at the end of March 2006, the total number of sick units stood at 13,553 units involving an outstanding bank credit of about Rs. 38,819 crore. 1, 26,824 units (i.e., 99 p.c.) were in the small scale sector. Of these, their share in the aggregate locked in bank credit was only 17.5 p.c.
The three major industries affected by industrial sickness are jute, engineering goods, and textiles. Out of total references received by the BIFR from both PSEs and private sector units of 6,991 as on 30 September 2006, the total references of the private sector stood at 6,695 units. Of these, 678 units had been declared sick by the BIFR. This fact suggests poor the performance of the private sector units.