Industrial Sickness & Black

Economy

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 Introduction

 The inefficiency of the enterprises transforms them

into the sick units.
 Growing incidence of sickness has been one of the
major problems faced by the industrial sector of the
country.
 Substantial amount of loanable funds of financial
institutions is blocked up in sick industrial units
causing not only wastage of resources but also
affecting the healthy growth of the Indian Economy.

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 What is the Sick Unit?

 According, State Bank of India, “A sick unit is that unit

which fails to generate internal surplus on a continuing basis
and depends for its survival on frequent infusion of external
funds.”
Thus an industrial unit was defined as sick if:
 It incurred cash losses for the current and the preceding
year, and
 Its net worth has eroded.

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 Warning Signals of Sick Unit:

 Shortage of Liquid Funds to meet Short-Term Financial

Obligations and other Statutory Obligations
 Accumulation of Excessive Inventories
 Underutilization of Capacity
 Decreasing Return on Investment
 Deteriorating Financial Ratios
 Financing Capital Expenditure out of Short-Term Sources
 Other Symptoms:
 Rapid turnover of key personnel
 Existence of a large number of law suits against the company.

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 Causes of Industrial Sickness

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 Causes of Borne Sickness:
 Wrong Location
 Inexperienced Promoters
 Technical Factors
 Investment in Unproductive Capital Assets
 Long gestation period
 Rosy Picture Presented by Consultancy FirmsFaulty
Demand Forecasting

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 Causes of Achieved Sickness
 Management Problems
 Financial Problems
 Labour Problems
 Diversion of Resource
 Failure to Modernize
 Personal Wasteful Expenditure
 Poor utilization of Fixed Assets.
 Inadequate attention towards maintenance management, leading to
frequent breakdowns of machinery.
 Absence of proper costing methods and pricing techniques.
 Lack of quality control and quality assurance.
 Inadequate emphasis on research and development.
 Inadequate material control.
 Lack of market research and market survey.
 Inadequate promotional activities.

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  Government Policy
 Increased Competition from MNCs
 Power Cuts
 Shortage of Raw Material
 Recession in the Market
 Dereservation
 Customer’s resistance to the unit’s product.
 Infrastructural problems
 Poor law and order situation
 Political interference.

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 Effects of Industrial Sickness
 Setback to Employment Prospects
 Wastage of Resources
 Adverse Effect on Related Units
 Industrial Unrest
 Adverse Effect on the Investors and
Entrepreneurs
 Losses to Banks
 Loss of Revenue to Government

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 Measures Taken by Government
 Takeover of the Management
 Amalgamation with Healthy Units
 Excise Loans
 Setting up of Industrial Investment Bank of India (IIBI)
 Margin Money Scheme: In June 1987, government introduced a
scheme known as Margin Money Scheme. Under this scheme,
liberal financial assistance was granted to small sick industrial
units, at low rate of interest and at lesser security.
 Establishment of National Company Law Tribunal

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 Measures Taken by Banks
 Recovery of interest at reduced rates.
 Grant of additional working capital to overcome the shortage of
working capital.
 Writing off the whole or the part of accrued interest.
 Setting up a Sick Industrial Undertakings Cell in Reserve Bank
of India to obtain timely information regarding sick units.
 Setting up a special cell in Industrial Development Bank of
India (IDBI) to identify and solve the problem areas of sick
units.
 Reserve Bank issued guidelines to the banks with a view to
ensure that the potentially viable sick units in small scale
industries sector get due attention and timely support.

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 BLACK MARKET

ITS ORIGIN, SIZE AND IMPACT ON THE

MAINSTREAM ECONOMY

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 “The BLACK economy includes those activities that
go unreported or are unmeasured by the society’s
current techniques for monitoring economic activity.”

 “Black market includes all unregistered economic activities which

contribute to the officially calculated GNP (Gross National
Product).”

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 Simply put, black market is often could be demonstrated as hidden
economy of a country. People or business entities when do not show their
exact income as per government rules the income comes under parallel
economy.
 The informal economy includes unreported income from the production
of legal goods and services, either from monetary or barter transactions -
hence all economic activities which would generally be taxable were they
reported to the state (tax) authorities.
 In general, a precise definition seems quite difficult as the informal
economy develops all the time and adjusts to changes in taxes, sanctions
from the tax authorities and to general moral attitudes.

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 Black Market exists due to various
reasons:-
 High tax rates implemented by the government.
 Complicated tax paying procedures and policies.
 People believe that their money is not going to be properly
utilized by government as their trust on government is less.
 High inflation which puts tax payers under high tax paying
brackets.
 People do not get enough return on their paid taxes.
 Involvement of government agencies and officials in corrupt
practices.
 Insufficient laws and their implementation to counter such
activities.

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 The black market is a market where all commerce is conducted without
regard to taxation, law or regulations of trade.
 It is generally smallest in countries where economic freedom is greatest,
and becomes progressively larger in those areas where corruption,
regulation, or legal monopolies restrict legitimate economic activity.
 Goods acquired illegally may be cheaper than legal market prices. The
supplier does not have to pay for production costs or taxes. This is usually
the case in the underground market for stolen goods. Criminals steal goods
and sell them below the legal market price, but there is no receipt,
guarantee, and so forth.

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 The amount of money laundered in the whole world is close to $2.85
trillion per year. As per an estimate of International Monetary Fund the
aggregate size of this underground and illegitimate market is between 2 to
5 percent of world’s gross domestic product.
 The range of activities that takes place in black economies is vast,
spanning from the innocuous (t-shirts and shoes) to the edgy and dangerous
(drugs, and guns). Also, much of a black market is legal business being
conducted in an effort to evade tax authorities.
 It is a challenge for economists to accurately measure, or even estimate the
size of many black economies. This is because they may be illegal, and
therefore are not reported to tax authorities or stock exchanges. The money
that changes hands in such an economy are never recorded and no taxes are
ever paid.

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COMPONENTS OF A BLACK
MARKET ECONOMY
ARMS &
AMMUNITION
DRUGS, CURRENCY
ALCOHOL & EXCHANGE
TOBACCO

CORRUPTION
HAWALA
& BRIBERY

BLACK
SWISS BANK
COPYRIGHTD ECONOM ACCOUNTS
MEDIA Y

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