Reasons and Causes of Industrial Sickness in India

The various external and internal causes of Internal Sickness in India have been discussed below:

1. External causes

Recession in the Market: Sometimes recession hits the whole industry as a result of which individual units are unable to sell their products. The availability of credit is also restricted during such times which jeopardize the production activities of such units. Hence, the work of these units comes to a standstill.

Decline in Market Demand for the product: A product may reach a stage of maturity and ultimately a stage of decline. This happens when new better products invade the market and make the old product redundant.

Excessive competition in the Market: Excessive competition in the market will justify the survival of only the fittest firm. The high cost units over time will become weak and fall sick.

Erratic supply of Inputs: Erratic and insufficient supply of inputs like raw-materials, power, skilled man­power, finance, credit and transport at reasonable prices could cause disturbance in the production schedule and ultimately result in sickness of the firm.

Government Policy: Excessive govt., control and restrictions on capacity utilisation, location, product mix, product quality, prices, distribution etc. come in the way of smooth functioning of the firms and often result in sickness of the firm. Further, frequent changes in government policy relating to industrial licensing, import, exports, taxation, credit can make healthy units sick overnight.

Unforeseen circumstances: Natural calamities such as droughts, floods earthquakes, accidents and wars etc. may turn some units sick and enviable.

2. Internal Causes

Faulty planning: At the planning stage itself, weak foundations may be laid, which may ultimately result in downfall of the unit.

Incompetent Entrepreneurs: Many persons starting new business lack technical knowledge of the product they want to manufacture. It is the normal case with small scale entrepreneurs. They sometimes plough into production activity, without bothering to find out the marketing potential of their product or sometimes they start production without properly calculating the ultimate cost. Poor maintenance of plant and machinery, constant technical problems with maintenance of production volume, quality, time schedule and cost limits may ultimately spell doom for the firm.

Problems relating to Management: Since Production, marketing, finance, etc. are in the hands of management, any wrong decision by them in regard to these fields may ultimately ruin a firm. The management may lack business acumen to make demand projections, to push the product in the market, to build up market image and customer loyalty, to face competition and so on.

Improper level and use of working capital can also ruin the firm. Similarly, poor industrial relations, lack of human resources planning, faulty wage and promotional policies can cause problems for the existence of the firm. So, incompetent management is the most important reason behind industrial sickness.

Financial problems: These problems are generally faced by small units. Often the financial base of the small units is very weak. They generally borrow from their own known sources or banks, rather than approaching market. Generally, they are unable to meet their debt obligations in time and these debts accumulate. Banks normally do not help at this stage when symptoms begin to show the problem and sickness becomes chronic.

Labor unrest: Labor unrest for a long period may ultimately spell doom for the firm.

The above causes are general causes of sickness. A firm could get sick because of one or more of the above causes. However, it has been found that industrial sickness results more due to faulty, careless behaviour and attitude of management, than due to any other reason. In many cases, irresponsible and callous behaviour of the managers has been found to be the most important cause of sickness for the firm.

Steps Taken for Revival of Sick Industrial Units

The Government of India has taken a number of steps for the revival of sick industrial units. Important among these are:-

1. Setting up of Industrial Reconstruction Bank of India (IRBI) for rehabilitating sick units.
2. Introduction of margin money scheme for sick units.
3. Instructing banks and financial institutions to detect sickness in the incipient stage and to take corrective measures in time.
4. Close monitoring of sick units by the Reserve Bank of India.
5. Setting up of the BIFR under SICA for determining preventive ameliorative and remedial measures.
6. Introduction of the scheme of excise loan to sick units.
7. Instructions to banks to actively participate in rehabilitating the units which have turned sick to whom they had earlier given finance under consortium agreement.