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Industrial Sickness Article 2

Industrial Sickness Article 2

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Published by: sreedeveeraman on Apr 03, 2010
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09/23/2011

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IndustryAn industry (from Latin industries, "diligent, and industrious") is the manufacturing of a good orservice within a categoryThe key industrial economic sectors are:The primary sector, largely raw material extractionindustries such as mining and farming;The secondary sector, involving refining, construction, and manufacturing;The tertiary sector, which deals with services (such as law and medicine) and distribution of manufactured goods;Sickness:Constituting an unhealthy environment for those workingIndustrial SicknessIntroductionDefinition of a sick unit is given by Sick Industrial companies act, 1985. According to the act “ Thesick industrial company is a company which has at the end of any financial year accumulated lossesequal to or excluding its entire net worth and has also suffered cash losses in that financial year andin the financial year immediately preceding it.” Extent of sicknessIndustrial sickness is growing at an annual rate of about 28% and 13% respectively in terms of number of units and out standing number of bank credit. It is reckoned that as of today there aremore than 2 lakhs sick units with an outstanding bank credit of over Rs7000crore nearly 29000units are added to sick list every year.Industrial sickness especially in small-scale Industry has been always a demerit for the Indianeconomy, because more and more industries like – cotton, Jute, Sugar, Textile small steel andengineering industries are being affected by this sickness problem.Causes of sickness of ssi'sMost of the Indian authors and researchers have classified the different types of industrial sicknessunder two important categories. They are:1) Internal Cause for sickness:We can say pertaining to the factors which are within the control of management. This sicknessarises due to internal disorder in the areas justified as following:a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient workingcapital management, absence of costing & pricing, absence of planning and budgeting andinappropriate utilization or diversion of funds.b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.
 
c) Marketing and Sickness: This is another part which always affects the health of any sector as wellas SSI. This including wrong demand forecasting, selection of inappropriate product mix, absenceof product planning, wrong market research methods, and bad sales promotions.d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs isinappropriate personnel management policies which includes bad wages and salary administration,bad labour relations, lack of behavioral approach causes dissatisfaction among the employees andworkers.e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or badcorporate management which includes improper corporate planning, lack of integrity in topmanagement, lack of coordination and control etc.2) External causes for sickness:a) Personnel Constraint: The first for most important reason for the sickness of small scaleindustries are non availability of skilled labour or manpower wages disparity in similar industry andgeneral labour invested in the area.b) Marketing Constraints: The second cause for the sickness is related to marketing. The sicknessarrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in globalmarketing scenario, excessive tax policies by govt. and market recession.c) Production Constraints: This is another reason for the sickness which comes under externalcause of sickness. This arises due to shortage of raw material, shortage of power, fuel and highprices, import-export restrictions.d) Finance Constraints: another external cause for the sickness of SSIs is lack of finance. Thisarises due to credit restrains policy, delay in disbursement of 
by govt., unfavorable
, fear of nationalization.REASONS FOR SICKNESS IN SSI’sProduction Related Reasons:
Faulty Product Mix
Acklog of Production
Poor Quality of end product
Delayed delivery scheduleFinancial Reasons:
Low Profitability
Low fund generation
Poor liquidity
Step Cost structure
Lack of financial resources
Lack of credit facility
Faulty credit utilization
Low share valueMarket Reasons:
Poor marketing strategy
 
Imbalance between production & marketing
Wild market shifts
Lack of awareness of consumer’s preferences
Lack of specific market segmentation
Poor distribution network
Poor market performanceSignals of sicknessThe following actions of the unit indicate that the unit is sick or going to be sick:
Continuous irregularity in cash credit accounts ;
Low capacity utilization;
profit fluctuations, downward sales and fall in profits followed by contraction in the sharemarket;
Failure to pay statutory liabilities;
Larger and longer outstanding in the bills accounts;
Non submission of periodical financial data /
 statement etc. in time;
financing capital expenditure out of funds provided for working capital purposes;
Rapid turn over of key personnel;
Existence of large no. of law suits against a company;
Rapid expansion and too much diversification within a short time;
Any major change in the share holdings.Effect of sickness
Industrial Sickness contributes to high cost economy. This in turn, will affect thecompetitiveness of the economy at home and abroad.
Dead investment is a burden on both banks and budgets and ultimately consumers shouldpay the high cost.
Money locked up in sick units gives no returns and effects the availability of resources tothe other viable unitsRemediesMajority of sick units is retrievable in order to tackle the problem of sickness from the two anglesthe role of three agencies assumes significance: a) The government b) Financial institutions andthe industry associationsa) The Role of Government: If the number of units in the country has increased some 10 timessince independence and if we have diversified industrial structure with wide spreadentrepreneurship the credit for this largely belongs to government.Second area where the government can be helpful is Vis-à-vis industrial licensing. The veryexistence of licensing and monopoly regulation legislation implies that there is a stampede to “to getin” when ever licensing is liberalized for an industry or an economy as a wholeb) The Role Of Financial Institutions: The following are the ways by which sickness can beprevented by financial institutions :a) Continuous monitoring of unitb) Careful project appraisal

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