The Reasons for Industrial Sickness in India



Some of the reasons for industrial sickness in India are as follows:

Reasons for industrial sickness in India As per the definition of the sick industry under the Companies (Special Provisions) Act-1985, and Companies (Amendment) Act-2002 an industrial unit is termed as sick when its accumulated loss within a year or within four previous years becomes 50% or more of its net worth (net worth = paid up capital and free reserves) or has been unable to repay lenders for these or more consecutive years. As per RBI estimates there were 177336 sick industrial units with an overdue loan of Rs 4818.95 crore at the end of March 2002.

The important reasons for sick industries are:

1. Fault at the initial level of planning or erection of the unit such as poor technical feasibility and economic viability studies.

2. Malafide intention of the promoters mainly to usurp subsidies and enjoy credit at cheap interest rate.

3. Poor financial management and fund diversion.

4. Incompetence on the part of the entrepreneur’s lack of technical and managerial skill.

5. Political interference in the appointment of senior executives in PSUs

6. Age-old, inefficient and defective machinery and technology.

a. Remedies Banks should grant concession for sick industrial units to rehabilitate them such as grant of additional working capital loans to cover the shortage of working capital, rescheduling of debt recovery, concessions in interest recovery.

b. BIFR should be armed with more teeth and its decisions should be made binding upon the tender banks.

c. Banks debt of terminally sick units should be discounted by some specialized agency for winding up of such units.