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Chapter 7
Rehabilitation Measures to Remove
Industrial Sickness
In Chapter 6, we have presented a detailed analysis of the study carried out in
Kamrup district over the period 2001-10. We have identified the factors behind the
industrial sickness observed. The study covered nearly ten different types of units
and focussed on the primary causes that contributed towards sickness. Here, we
discuss some measures that have been taken by government both central and state
and Reserve Bank of India as remedial steps which have been the basis of formulating
appropriate policies at different levels. The suggestions have accumulated over the
period of study and are related to the government, banks, financial institutions and
the entrepreneurs.
7.1 Introduction
The industrial sickness observed in the units spread all over Kamrup district have
certain common elements and linkages primarily to lack of adequate infrastructure
facilities, skilled manpower and inputs like raw materials, power, fuel etc. These
issues are closely linked to the economic well being of the state. Therefore, it is
strongly believed that appropriate measures can arrest the decline and rejuvenate
the industrial climate of Kamrup district in particular and the state in general.
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Here, we discuss certain rehabilitation measures which have been considered to be
relevant in case of government and Reserve Bank of India policies for the purpose.
Scarcity of capital is one of the important causes of slow rate of industrialization in
the state. Proper and productive utilization of capital is of utmost importance in
order to raise the rate of industrial as well as economic development of the state.
Though the state possesses vast natural resources, adequate exploitation and utiliza-
tion of resources have slowed down the rate of industrialization. Moreover, a large
amount of capital has gone waste due to the growing issues of industrial sickness,
particularly in the small scale industries. Thus, strong effort is needed as early as
possible to deal with the problem of industrial sickness. Otherwise, this malady will
spread to the whole industrial sector of the economy and thus vitiate the future
industrial prospects of the state. The ever-increasing incidence of industrial sick-
ness poses as a threat to the whole socio-economic setup of the state in particular
and the country in general. Certain rehabilitation measures are identified which
are essential to fight industrial sickness. Rehabilitation implies a remedy meant for
industrial units which have already become sick and are on the verge of virtual col-
lapse. The discussion is subdivided into the following sections. In Section 7.2, the
measures adopted by Government of India have been discussed. Some of the mea-
sures initiated by the Reserve Bank of India are included in Section 7.3. Section 7.4
includes the rehabilitation measures concerning the Govt. of Assam. An insight
into the current state of industrial rehabilitation measures have been provided in
Section 7.5. Section 7.6 concludes the chapter.
7.2 Rehabilitation Measures Adopted by Govern-
ment of India
The growing incidence of industrial sickness and the huge resources blocked in these
sick units have necessitated the government to take certain steps in order to overcome
the problem of widespread sickness in industries in India. Hence, some institutions
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and committees were constituted and policies were adopted to deal with the prob-
lem of industrial sickness. These committees studied several aspects pertaining to
sickness and suggested certain action plans for retrieving of industrial sickness. Sim-
ilarly, the different institutions have their own package programmes to cure sickness.
Term lending institutions in our country play an important role in rehabilitation of
sick industrial units. Besides participating in modernization of plants of sick units,
these institutions have their own revival measures. The role played by different term
lending institutions are discussed below:
1. Industrial Reconstruction Corporation of India (IRCI)- The IRCI was estab-
lished in April, 1971. It was constituted as a specialized financial institution
to provide financial assistance for the reconstruction and rehabilitation of sick
industrial units. The IRCI provided credit facilities to different state level
institutions/union territories agencies like State Financial Corporations and
State Industrial Development Corporations. Its main aim was to help rehabil-
itation of sick small scale industrial units. The activities of IRCI were confined
to the eastern region of the country in its initial period, but the activities ex-
tended to other states of the country since June, 1980. Till the end of March,
1984, the IRCI sanctioned credit facilities to 17 state level/union territories
agencies for a total amount of Rs. 8.5 crores and disbursed Rs. 1.5 crores [1].
On August 7, 1984, the IRCI was converted into a statutory corporation known
as Industrial Reconstruction Bank of India (IRBI) by passing a bill in Par-
liament. In 1995, the Finance Ministry again renamed IRBI as Industrial In-
vestment Bank of India (IIBI). Since the financial assistance provided by the
institution was meagre, the government has currently closed the institution.
2. Industrial Finance Corporation of India (IFCI)- The IFCI was established
in 1948 for providing medium and long term finance to industries. The role
of IFCI mainly covers both the project financing operations and promotional
activities. The Corporation has a Department, i.e. Problem Cases Department
(PCD). Through its Department the Corporation processes and monitors the
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cases of sick industrial units. After that it adopts proper remedial measures
in order to revive the sick units. The PCD extensively reviews if a sick case is
transferred to it and accordingly takes decisions to undertake a rehabilitation
scheme. Moreover, the PCD monitors systematically the implementation of
the rehabilitation scheme adopted for a sick unit and tries to merge a sick unit
with a healthy one with essential resources both managerial and financial. IFCI
has been taking initiative to provide concessional assistance for modernization
of the ‘Soft Loan Scheme’ to jute and sugar industries. This is a leading
institution for jute and sugar industries since 1976. The loan sanctioned by
IFCI increased from Rs. 210 crores in 1980-81 to Rs.1860 crores in 2000-01 [2].
But the number of defaulters of the IFCI has increased considerably primarily
because of the reason that it was forced to lend to the wrong parties.
3. State Financial Corporations (SFCs)- The SFCs were set up in 1951 to provide
financial assistance to small scale and medium-sized industries by passing an
Act in 1951 and made it applicable to all the states. The SFCs provide lib-
eral financial assistance on concessional terms to industrial units in specified
backward areas. The loans and advances granted to industrial concerns are
repayable within a period not exceeding 20 years. In India, every state has
a Financial Corporation of its own. It may be mentioned that over 70 % of
the total assistance sanctioned and disbursed by all SFCs is provided to small
scale industries [3].
Besides SFCs, there are 28 State Industrial Development Corporations (SIDCs).
Their main objectives are to promote industrial development of the respective
states and to augment the rate of development of backward regions.
4. Industrial Credit and Investment Corporation of India (ICICI)- The ICICI
was sponsored by a mission from the World Bank. The main objective was to
develop small and medium industries in the private sector. The Corporation
granted long term and medium term loans, both rupee loans and foreign cur-
rency loans. The important aim of the Corporation was to assist the expansion
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and modernization of existing industries and to furnish managerial, technical
and administrative advice to industries.
“To deal with the ever-growing problem of industrial sickness, the ICICI par-
ticipated with the IDBI, IFCI and other financial institutions in providing
assistance on soft terms to projects of modernization on cotton textiles, jute,
sugar, cement and engineering industries. The Corporation commenced sanc-
tion under the Soft Loan Scheme in 1977 and by the end of the year had
sanctioned Rs. 20.40 crores to 41 companies” [4].
It can be noted that several projects assisted by ICICI failed to meet the ex-
pectations, though in some cases its success rate was remarkable. In 1983,
ICICI commenced leasing operation in industries like textiles, engineering,
chemicals, fertilizers, cement, sugar etc. The loans disbursed by the Corpo-
ration rose from Rs.180 crores in1980-81 to Rs.31660 crores in 2000-01 [5].
ICICI was the most successful development financial institution set up by the
Government of India.
5. Industrial Development Bank of India (IDBI)- The IDBI was set up in July,
1964. The objective was to bring into existence an apex institution to co-
ordinate the activities of all agencies which are concerned with the provision
of finance for industrial development like other financial institutions and banks.
Another objective was to provide direct financial assistance to industrial units
particularly large and medium-sized units. The IDBI was wholly-owned sub-
sidiary of the Reserve Bank of India. However, it was delinked from the Reserve
Bank of India in 1976 and was taken over by the Finance Ministry.
A Rehabilitation Finance Division (RFD) was set up in IDBI in February 1976
to deal with the problems of sick industrial units. “The measures adopted
for rehabilitating sick industrial units include identification of causes of sick-
ness, assessment of rehabilitation needs, formulation of appropriate measures
in consultation with participating institutions and banks, close monitoring of
sick units and periodical evaluation of the impact of rehabilitation measures”
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[6].
Rehabilitation assistance was given to 202 sick units by the IDBI by the end
of June, 1984 of which cotton textile, sugar, paper, metal and engineering
accounted for 65 % [7]. Moreover, the IDBI also granted soft loans to indus-
trial units and it became as one of the most important institutions assisting
industries till 2000-01. But the disbursement of loans by IDBI declined from
Rs.17,480 crores to Rs.4820 crores between 2001 and 2005 [8].
6. Small Industries Development Bank of India (SIDBI)- The Government of
India set up Small Industries Development Bank of India (SIDBI) in April,
1990 as a wholly owned subsidiary of IDBI. SIDBI has been playing a vital
role in the promotion, financing and development of small scale industries in
India. SIDBI makes use of different banking and financial institutions exist in
the country in the matter of extending financial assistance to the small scale
units.
The important functions of SIDBI are given below [9]:
(a) SIDBI refinances loans and advances extended by the primary lending
institutions to small scale industrial units and also provides resources
support to them;
(b) SIDBI discounts and rediscounts bills arising from sale of machinery to
or manufactured by industrial units in the small scale sector;
(c) SIDBI extends seeds capital/soft loan assistance under National Equity
Fund, Mahila Udyam Nidhi and Mahila Vikas Nidhi and seed capital
schemes through specified lending agencies;
(d) SIDBI grants direct assistance as well as refinance loans extended by pri-
mary lending institutions for financing expert of products manufactured
by industrial concerns in the small scale sector;
(e) SIDBI provides services like leasing, factoring etc. to industrial concerns
in the small scale sector;
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(f) SIDBI extends financial support to State Small Industries Development
Corporations for providing scarce raw materials to and marketing the
end-products of industrial units in the small scale sector, and
(g) SIDBI provides financial support to National Small Industries Corpora-
tion for providing leasing, hire-purchase and marketing support to indus-
trial units in the small scale sector.
Several steps have been taken by SIDBI like technological upgradation and
modernization of existing units, marketing of products in internal and inter-
national market etc. Moreover, operation of Single Window Scheme (SWS),
provision of Automatic Refinance Scheme (ARS), setting up of venture capital
scheme are some of the major steps taken by SIDBI for the development of
small scale industries.
SIDBI has succeeded to a great extent in extending financial assistance to
small scale sector. During 2006-07, it disbursed Rs.10,130 crores which can be
considered to be a great success within a short period of time [10].
7.3 Rehabilitation Measures Adopted by Reserve
Bank of India
The Reserve Bank of India has been playing a vital role in preventing sickness in
industrial units. Since the amount of outstanding bank credit has gone up day by
day, the Bank has been taking keen interest not only reviving the sick units, but also
influencing the financial institutions to provide rehabilitation packages for these sick
units. The first organized attempt to tackle the problem was made when the Reserve
Bank of India organized a seminar on sick industrial units in April, 1976 [11]. After
the seminar, the Bank created a Sick Industrial Cell in 1976 in its Department of
Banking Operation and Development (DBOD). The important steps taken by the
Cell were to monitor the performance of commercial banks in identifying the sick
units and launch proper remedial measures whenever necessary. Another step was
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to coordinate the efforts of the government, banks, financial institutions and other
agencies in rehabilitation of potentially viable sick units.
The Reserve Bank of India, in November, 1976, asked the commercial banks to fur-
nish a quarterly statement of all sick units enjoying aggregate credit limit of Rs. 1
crore and above from the banking system. The banking system which has already
developed an information system under the guideline of the Reserve Bank of India
can help in detecting incipient sickness in industrial units.
Again the Reserve Bank of India has asked each bank to create a Cell both at the
central and regional offices in order to observe the position of sick industrial units
on an ongoing basis so that the reasons of sickness can be found out. The Cell has
to ascertain the viability of the units and if it is found viable, it has to determine
the appropriate steps necessary for its rehabilitation.
In order to understand the problems of a sick unit properly and to take decision
for rehabilitation on time, the Reserve Bank of India takes initiative to bring the
financial institutions together. The banks are asked by the Reserve Bank of India
to furnish with quarterly reports on the basis of performance of both healthy and
sick units.
The Reserve Bank of India constituted a Study Group called Tandon Committee
Report in July, 1974 to suggest guidelines to commercial banks for follow-up and su-
pervision of credit for ensuring end-use of funds and keeping a watch on their safety,
to recommend a system for obtaining periodical forecast and prescribing inventory
norms for different industries and to suggest criteria in respect of satisfactory capital
structure and sound financial basis [12].
In 1975, another committee, i.e. Varshnay Committee was appointed by the State
Bank of India. The purpose was to identify the important causes of industrial sick-
ness and their impact on bank loans. The Committee defined a sick industrial unit
as “a unit which fails to generate internal surplus on continuing basis and depends
for its survival on frequent infusion of external funds” [13]. According to the Com-
mittee, there are two main factors which determine the sickness of an industrial unit.
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First, the unit fails to create surplus funds internally on permanent basis. Second,
the unit has to depend on external funds for its survival due to lack of generation
of internal surplus.
The Committee in its study found that internal causes were mainly responsible for
sickness in industrial units though in some cases internal weaknesses were affected
by external factors also. In the opinion of the Committee, efficient and effective
management are indispensable to control the internal weaknesses of the industrial
units.
Another committee named H. N. Ray Committee was appointed in 1976 [14]. A
high power Committee was constituted in 1978 to discuss the problem of sickness
and the role of the banking system in their rehabilitation [15]. Among the different
decisions taken by the Committee, the most important decisions were as under:
• The Committee advised the banks to collect quarterly information of the iden-
tified sick units and after conducting viability study, the industrial units should
be put under rehabilitation programme.
• The Standing Coordination Committee was appointed in January 1979 fol-
lowing the recommendations of the Inter-Institutional Group (Bhucher Com-
mittee). The main objective was to consider issues relating to coordination
between banks and term lending institutions. In August, 1983, the Committee
was reconstituted. The Chairman of the Committee was A. Ghosh, Deputy
Governor of the Reserve Bank of India. The Committee would help in effec-
tive and speedy implementation of different schemes for revival of potentially
viable sick units.
• The Reserve Bank of India issued detailed guidelines on March 26, 1981 on
the constitution of State Level Inter-Institutional Committee (SLIIC) though
it was initially set up at the Regional Offices of Reserve Bank of India. As
per guidelines, the Secretary (Industries) of the concerned state government
would be the Chairman of the Committee and Director. The Committee in-
133
cluded representatives of SISI, SFC, SIDC, IDBI and 3-4 banks with majority
presence as members. The important function of the Committee was to mon-
itor/review the different cases of rehabilitation of sick small scale industrial
units. The two main objectives of the Committee were- (1) interaction regard-
ing rehabilitation of sick small scale industrial units between state government
officials and state level institutions and (2) interaction between term lending
institutions and banks. A sub-committee of SLIIC was also set up. In this
committee the borrowers and the concerned banks could make a discussion on
the issues of rehabilitation. The Convener of the SLIIC is the Reserve Bank.
The Committee meets once in a quarter.
A Committee was constituted on July 14, 1981, headed by Shri T. Tiwari, Chair-
man, IRCI, Calcutta and members from Reserve Bank of India, various banks such
as State Bank of India, Bank of Baroda, United Bank of India and other term lend-
ing institutions such as IDBI, IFCI, ICICI and so on [16]. The purpose was to
examine the legal and other difficulties encountered by banks and financial institu-
tions in the rehabilitation of sick industrial undertakings and to suggest remedial
measures including changes in law.
The Tiwari Committee submitted its report to the government in September, 1983.
The Committee emphasized the need for a special legislation designed to deal with
the problems of sickness in industrial units. The Committee further suggested to
set up an exclusive quasi-judicial body in order to revive the sick industrial units.
Based on the recommendations of the Tiwari Committee, the Government of In-
dia enacted the Sick Industrial Companies (Special Provision) Act (SICA) in 1985
[17]. The important objective of SICA was to detect sickness at early stages and
to suggest remedial measures for revival of potentially viable sick industrial units.
Thus SICA was considered to be a crucial step taken by the government to deal
with the problems of sickness in industrial units in the country. A sick industrial
company defined by SICA has already been explained in earlier chapters along with
the extensive changes made in the Act from time to time.
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In conformity to the provisions of SICA, the Board for Industrial and Financial
Reconstruction (BIFR) was set up in January, 1987. The Board started function-
ing with effect from 15th May, 1987 and now all industrial companies are required
to report themselves to BIFR whose peak net worth in immediately preceding five
financial years has been eroded by 50 %. Of course, changes have been made in the
definition of sick company and the Companies (Second Amendment) Act, 2002 has
been cited earlier in the work. The Appellate Authority for Industrial and Financial
Reconstruction (AAIFR) was also set up in 1987 in order to hear appeals against the
orders of BIFR. The BIFR can appoint as operating agency to any public financial
institutions and banks as specified in the Act. The main function of the operating
agency is to make enquiry and formulate a scheme for revival/rehabilitation of sick
companies.
The Reserve Bank of India constituted a Committee under the Chairmanship of
Shri A. Hasib, the then Executive Director of the Bank. The same guidelines is-
sued for rehabilitation of large and medium scale units were applicable in case of
the rehabilitation of sick small scale industrial units found potentially viable till
February, 1987. The Reserve Bank of India felt the need for introducing separate
guidelines for rehabilitation of sick units in small scale industrial sector. The Hasib
Committee was constituted to examine the definition of sick small scale industrial
unit, incipient sickness, viability norms and reliefs and concessions from banks and
other financial institutions for implementation of rehabilitation package in case of
potentially viable industrial units while issuing separate guidelines for rehabilita-
tion of sick small scale industrial units. The Reserve Bank of India issued detailed
guidelines for rehabilitation of sick small scale industrial units in 1987 basing on the
recommendations of this Committee. These guidelines pertaining to the definition
of sick units, nature of relief and concessions etc. underwent several changes in the
later period because of the different High Level Committees constituted both by
the government and the Reserve Bank of India like Nayak Committee, Goswami
Committee, Kapur Committee, the Kohli Working Group etc.
135
In December, 1991, the Reserve Bank of India constituted another Committee under
the Chairmanship of P. R. Nayak. The Nayak Committee submitted its report in
September, 1992. The Committee discussed in details the existing Reserve Bank of
India guidelines on sick small scale industrial units and suggested certain changes.
The major measures recommended were to modify the definition of sick small scale
industrial unit, ensure setting up of separate cell to deal with sick small scale in-
dustrial units by banks at the regional centres, bear the sacrifices for rehabilitation
of sick units by all the concerned agencies, not only commercial banks and/or SFCs
alone, revitalise SLICs and act SIDBI as the convener of the SLIIC, set up special
courts to deal with recovery suits of banks etc.
Another Committee was set up by the government under the Chairmanship of Prof.
Omkar Goswami. The Committee looked into the several aspects of industrial sick-
ness and issues relating to corporate restructuring. The Committee submitted its
report in July, 1993. The major recommendations of the Committee were as follows
[18]:
1. The BIFR should be a fast tract facilitator by taking decisions instead of
seeking clarifications and explanations.
2. There should be 5 self-financing recovery tribunals exclusively for recovering
corporate debts to secured creditors.
3. The Reserve Bank of India guidelines for rehabilitation should need to be
altered to abjure the notion of sacrifices and instead address the basic issues
in appraisal.
4. The Central Board of Direct Taxes (CBDT) should remove all tax hurdles that
prevent banks and financial institutions from converting debt to equity of sick
companies particularly when recommended by BIFR.
5. The definition of sickness needs to be modified to facilitate early detection etc.
In December 1997, the Reserve Bank of India appointed a Committee, named
Kapur Committee on the working of credit delivery system for small scale industries.
136
The Committee submitted its report on June, 1998. The report stressed the need of
restructuring and reorientation of the different financial institutions like SIDBI, SFC
and commercial banks. In order to enlarge the flow of financial assistance to the
small scale industries, the Committee opined for setting up of some new funds and
agencies. In the matter of SIDBI, the Committee recommended that it should be
given the role of a strong apex body in order to coordinate the credit delivery system
of the small scale industries. The Committee further suggested to restructure the
weaker SFCs. Commercial banks should play a crucial role regarding opening of the
existing branches. Moreover, the Committee gave stress on converting the existing
branches to special branches to finance the small scale industries.
The Reserve Bank of India has been issuing several guidelines for rehabilitation of
sick small scale industrial units from time to time. The Chief General Manager of
Reserve Bank of India wrote letters to all scheduled commercial banks in January,
2002. The main contents of the letters are as follows:
“Several internal and external factors have put considerable pressure on the per-
formance of the SSIs, resulting in a number of them becoming sick. Of late, the
incidence of sickness in SSI sector is showing an increasing trend and a large num-
ber of SSI units, identified as sick, were not found potentially viable.
To address this, and other allied issues, the Group of Ministers on SSI, in their
meeting held on 16th August, 2000, had desired that Reserve Bank of India should
draw up a revised, detailed, transparent and non-discretionary guidelines for reha-
bilitation of current sick and potentially viable SSI units. Accordingly, a Working
Group on Rehabilitation of Sick SSI was constituted by Reserve Bank of India in
November 2000 with the Chairman, Indian Banks’ Association, Shri S. S. Kohli, as
its Chairman. The Group has since submitted its report and all the major recom-
mendations made therein, including a change in the criteria for identification and
classification of sick units in the SSI sector, have been accepted by the Reserve Bank
of India. The draft revised guidelines were put on Reserve Bank of India website
and also circulated among banks, SSI Association, etc. for eliciting their views.
137
The suggestions have been considered while finalizing the revised guidelines drawn
up on the basis of the recommendations of the Working Group” [19]. The revised
guidelines issued for rehabilitation of sick units in the SSI sector are available in
[20].
7.4 Rehabilitation Measures Adopted by Govern-
ment of Assam
In order to rehabilitate the sick small scale industries in the State of Assam, it is
indispensable to evolve a well planned and scientific strategy. The strategy must
stress on proper, scientific and in-depth study of the different sick small scale indus-
tries and identify the viable sick units where rehabilitation measures can be taken.
Money or resources should not be wasted putting on non-viable units in a capital
scarce economy like Assam.
The first move in Assam to adopt measures for rehabilitation of sick units was the
constitution of a State Level Coordination Committee on SSI Sick units [21]. In this
Committee, the Managing Director of ASIDC was the Convenor and the Director
of Industry was the Chairman. The Committee consisted of representatives from
entrepreneurs and organizations such Assam Productivity Council. But this was a
non-official body. It was the responsibility of the District Industries Center to iden-
tify the sick units through extensive examination of the records of the banks. But
several problems were faced by the DIC as most of the banks failed to submit proper
records. The State Bank of India and United Bank of India, however, extended full
support in submitting proper records. On the basis of the recommendations of the
said Committee, five units were selected for rehabilitation. Accordingly for these five
units appropriate measures were taken under Assam State Industrial Rehabilitation
(Special) Act 1984. It may be mentioned that this Act was based on an Ordinance
promulgated by the Governor in 1983.
The provision of 1984 Act enabled the declared units to have 5 years moratorium on
138
market dues, moratorium on bank dues for 7 years with frozen interest and deferred
payment of statutory dues [22]. Out of the five units selected for rehabilitation,
three of them have been found as healthy. The case of one unit has been under
processing and the rest one has been reported as doubtful case.
After that a State Level Inter-Institutional Committee (SLIIC) was constituted to
monitor/review the cases of rehabilitation of sick small scale industries. The oper-
ation of the non-official body, i.e. State Level Coordination Committee came to a
halt. In the SLIIC, the Chairman and Convenor are the Commissioner of Industries
and the representative of the regional office of the Reserve Bank of India respec-
tively.
In the matter of adopting rehabilitation measures by the government, certain pro-
cedures are followed. The District Industries Centers in their respective districts
scrutinies cases submitted by the industrial units. After proper verification, these
cases are forwarded to the SLIIC. There is a Standing Committee in SLIIC consist-
ing of the Director of Industries and representative both from the ASIDC and the
concerned banks. The recommendations given by the DICs are further scrutinized
by the Standing Committee and forwarded to the SLIIC. The SLIIC then sends
the cases approved by the Standing Committee to the government for taking up
rehabilitation measures under the Act of 1984. The adoption of the rehabilitation
measures to the industrial units depends on the government acceptance of the rec-
ommendations given by the SLIIC.
The Industrial Policy of Assam, 1986 stressed on the rehabilitation of viable sick in-
dustrial units in the state. Another Industrial Policy was announced in 1991 by the
Government of Assam. Among various objectives, one of the important objectives
of this Policy was to provide for the revival of viable sick units through proper iden-
tification and provision of comprehensive package of assistance and to take steps for
periodical and regular monitoring and guidance to new units to avoid sickness. This
industrial Policy considered the necessity to review and revise the existing industrial
policy and incentive scheme which became operative from 1st January, 1987 [23].
139
All incentives under the ‘1991 Incentive Scheme’ would be available for revival of
viable sick industrial units. The incentives were as follows:
1. Sales Tax Exemption
2. Subsidy on Infrastructural Facilities
3. Allotment of Factory Sheds to SSI Units
4. Manpower Development of Local Entrepreneurs
5. Equity Participation in the Assisted Sector
6. Interest Subsidy
7. Reduction of Assam Finance Tax
8. Power Subsidy
9. Contribution to Feasibility Study Cost
10. Subsidy on Generating Sets
11. Development Subsidy
12. Connectivity of Power Line
13. State Capital Investment Subsidy
14. Pioneer Unit.
The Industrial Policy of Assam, 1991 failed to raise the rate of industrial develop-
ment of the state. Further, the state failed miserably to reap the benefit of economic
liberalization and globalization process adopted throughout the country. Hence, the
state government introduced a new Industrial Policy in March, 1997. This Indus-
trial Policy formulated a package of incentives for the promotion of industrial units
and revitalization of sick industrial units in the state. The ‘1997 Incentive Scheme’
became operative from 1st April, 1997 for five years. The various incentives made
available under the ‘1997 Incentive Scheme’ were-
140
1. Power Subsidy
2. Interest Subsidy
3. Capital Investment Subsidy
4. Subsidy on Generating Set
5. Exemption of Sales Tax
6. Equity Contribution to Viable Projects and
7. Other Subsidies like (a) subsidy on cost of pollution control equipment, (b)
subsidy for ASEB connection and installation of transformer and (c) subsidy
on cost of quality control equipment.
All the incentives cited above would also be available for sick units. In 1997, the
state government declared six public sector units as sick and initiated efforts for
revival of these sick PSUs by handing them over to joint sector [24].
The Government of Assam declared another Industrial Policy affective from April,
2003. The Industrial Policy of Assam, 2003 has been formulated in the light of the
experience of implementation of the Industrial Policy of 1982, 1986, 1991 and 1997
[25]. Among the various aims and objectives, one of the objectives was to take
steps to revive the potentially viable sick Public Sector Undertakings and to make
the Public Sector Undertakings economically viable. It has been proposed in the
Policy to give certain incentives like
1. State Capital Investment Subsidy (30 % on Plant and Machinery)
2. Interest Subsidy on Working Capital Loan (30 % on paid up interest)
3. Power Subsidy for 5 years
4. Subsidy on Captive Power Generation
5. Subsidy on Marketing Assistance
141
6. Subsidy on Drawl of Power Line
7. Special Incentives for Food Processing/Electric/Agro-based/Biotech industries
8. Special Incentive to Women/Physically Challenged Entrepreneurs
9. Export Development Fund for development of Export Oriented Projects
10. Financial Assistance from Ministry of Food Processing Industries at the rate
33 per cent on Plant and Machinery and Technical Civil Works (ceiling Rs.
4.00 crore) and
11. Special Incentives under Assistance to State Infrastructure Development for
Export Allied Activities (ASIDE) [26].
In order to accelerate the rate of industrialization in the state, the Government of
India announced the North East Industrial Investment Promotion Policy (NEIIPP)
in 2007. In this Policy, special stress has been given on the word ‘INVESTMENT’.
The Government of India approved a package of fiscal incentives and other conces-
sions for the entire North Eastern Region (NER). Assam has the advantage to reap
more benefit from this Policy. Some of the important features incorporated in the
policy are- [27]
All new units as well as existing units (which go for substantial expansion) and com-
mence commercial production within the 10 years period (with effect from 1-4-2007
to 31-3-2007) set up anywhere in the NER will be eligible for incentives for a period
of 10 years.
• 100 % Excise Duty exemption will be continued on finished products made in
the NER.
• 100 % Income Tax exemption will continue as was available under NEIP-1997.
• Capital Investment Subsidy at the rate of 30 % will be available on investment
of Plant and Machinery and limit for automatic approval at the rate will be
Rs. 1.5 crore etc.
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• Interest Subsidy will be available at the rate of 3 % on working capital loan.
The Government of Assam has realized that economic development of the state can
be raised by augmenting the rate of industrialization. Hence, the Government of
Assam has declared another Industrial Policy in 2008. The main aims of the Policy
have been to provide more support to the local entrepreneurs and to attract more
investment from other parts of the country. The Policy has also emphasized the
revival of sick industries in the state. Further, special importance has been given to
the development and expansion of the micro and small sector. The highlights of the
policy are [28]-
• Interest Subsidy on term loan provided to Micro industrial units at the rate
of 30 per cent of the amount of interest paid to Bank/Financial Institutions
for a period of 5 years from the date of commercial production subject to a
ceiling of Rs. 1.00 lakh per unit/year.
• Power Subsidy-30 per cent subsidy on power tariff on actual unit consumed
for 5 years up to connected load of 1.00 MW subject to ceiling of Rs. 10.00
lakh per annum and 25 per cent for connected load above 1.00 MW subject
to Rs. 25.00 lakh from the date of commercial production.
• Special incentive for mega projects with large investment with a minimum of
Rs. 100 crore or generating a minimum of 1000 regular employment and hav-
ing potential for development of ancillary industries will receive all incentives
including priority on land allotment, tax concessions etc. on case to case basis.
• Special incentive like exemption of VAT and Central Sales Tax for a period of
3 years for revival of sick industries.
• To encourage Micro and Small Scale Sector and to facilitate market link-
age, government will actively encourage trade with neighbouring countries
and countries in South-East Asia.
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• 25 % subsidy on Drawl of Power Line to the premises of the unit including the
cost of transformer to Micro and Small Industrial Units.
• Special incentive to Food Processing/ Electric/ Agro-based/ Biotech indus-
tries.
• Special incentive to Women/ Physically Challenged Entrepreneurs.
• VAT exemption to all eligible units which manufacture goods in Assam under
the Assam Value Added Tax Act, 2003 and the Central Sales Tax Act, 1956.
• Exemption of Stamp Duty and Registration Fee for setting up of Industrial
Park/ Estate.
7.5 An Insight into the Current State of Industrial
Rehabilitation Measures
The various industrial policies discussed above have failed to raise the rate of in-
dustrialization in the state. Except a few new objectives, all previous ones of the
different industrial policies have been the same. The state government has failed
to keep its commitments in providing properly the incentives and subsidies incorpo-
rated in the different industrial policies. Hence, the entrepreneurs in the state have
gathered a bitter experience in setting up of industrial units. Due to widespread
red-tapism, nepotism etc. the investments and schemes of the entrepreneurs could
not proceed satisfactorily. The flow of incentives and subsidies were not adequate at
the time of requirements of the entrepreneurs. Further, inadequate supply of power
created a severe problem to the industrial units. Under such circumstances, the
production of different industrial units had declined and some of the entrepreneurs
had to close down their business. As a result, some of the recently set up small scale
units have been plagued by sickness and thus corroded the narrow industrial base in
the state. The problem of shortage of capital in the state can be removed when the
state government attracts more private capital, both domestic and foreign. Proper
144
training should be imparted to the officials and staffs of the different agencies con-
cerned with industries in the state. The success of the several policies adopted by
the government for industrial development of the state depends to a great extent in
taking initiative measures to build confidence among the investors. If this can be
done, it will pave the way for large investment in the industrial sector and help in
tapping the huge industrial potential of the state. Such steps will also exert positive
impact in arresting industrial sickness, particularly in small scale sector.
In this context, certain discussion on institutional finance is important. Institu-
tional finance plays a very vital role in the development of industries in various
states of the country. We have already discussed the financial assistance extended
to industries by different term lending institutions of the country. But in case of
Assam, the flow of institutional finance is very low as compared to the other states
of the country. The financial assistance sanctioned and disbursed by commercial
banks and other institutions like Industrial Credit and Investment Corporation of
India (ICICI), Industrial Finance Corporation of India (IFCI), Assam Industrial De-
velopment Corporation (AIDC), North Eastern Development Finance Corporation
Ltd. (NEDFi), Assam Financial Corporation (AFC), Industrial Development Bank
of India (IDBI), Industrial Investment Bank of India (IIBI), National Small Indus-
tries Corporation (NSIC), Small Industries Development Bank of India (SIDBI) etc.
has not been sufficient. Since inadequate institutional finance is one of the major
factors of sickness in industries, the state government should give proper stress to
make these financial institutions and banks more functional and active. Such steps
will help in combating industrial sickness, particularly in small scale industries in
the state. The sad part of the story is that as per the information provided by
North Eastern Small Scale Industries Association (NESSIA), not a single sick unit
has been rehabilitated in the state so far [29].
145
7.6 Conclusion
Here, a detailed account of revelent rehabilitation measures have been outlined which
are expected to be helpful in preventing sickness and rejuvenate industrial health.
First, we have discussed the different rehabilitation measures initiated by Govt of
India. Next, we have discussed certain measures taken by the Reserve bank of India
for rehabilitation of sick industrial units of the country. Govt of Assam has also
given priority to rehabilitation. Such measures are also discussed. At the end, an
insight into the entire scenario of rehabilitation of sick industrial units as observed
in Assam has been included. In Chapter 8, we subsequently discuss some of the
suggestions relevant towards reducing industrial sickness.
146
References
[1] Srivastava, S. S. and Yadav, R. A., (1986), Management and Monitoring of
Industrial Sickness, Concept Publishing Company, New Delhi, pp. 220-221.
[2] Datt, G. and Mahajan, A., (2013), Datt and Sundharam Indian Economy, S.
Chand and Company Pvt Ltd, New Delhi, p. 910.
[3] Ibid, p. 911.
[4] Kaveri, V. S., (1983), How to Diagnose, Prevent and Cure Industrial Sickness
(A Practical Approach), Sultan Chand and Sons, New Delhi, p. 124.
[5] Srivastava, S. S. and Yadav, R. A., (1986), Management and Monitoring of
Industrial Sickness, Concept Publishing Company, New Delhi, p. 216.
[6] Ibid, p. 216.
[7] Ibid, p. 216.
[8] Datt, G. and Mahajan, A., (2013), Datt and Sundharam Indian Economy, S.
Chand and Company Pvt Ltd, p. 913.
[9] Ibid. p. 913.
[10] Ibid. p. 913.
[11] Kaveri, V. S., (1983), How to Diagnose, Prevent and Cure Industrial Sickness
(A Practical Approach), Sultan Chand and Sons, New Delhi, p. 116.
[12] Khan, Nafees A, (1990), Sickness in Industrial Units, Anmol Publications, New
Delhi, p. 78.
147
[13] Sickness in Small Industry, (1988), Reddy, T. S. and Reddy, L. V., (ed.s),
Himalaya Publishing House, Bombay, p. 5.
[14] Prasain, G. P., Singh, E. N., (2012), Industrial sickness in Manipur-Causes and
Remedies, Concept Publishing Company Pvt, Ltd. , New Delhi, p. 10.
[15] Khan, Nafees A, (1990), Sickness in Industrial Units, Anmol Publications, New
Delhi, p. 76.
[16] Bidani, S. N. And Mitra, P. K., (1988), Industrial Sickness-Identification and
Rehabilitation, Vision Books Pvt. Ltd., New Delhi, p. 155.
[17] Government of India, Ministry of Law and Justice, The Sick Industrial Com-
panies (Special Provisions), Act, 1985, 1986.
[18] Jalan, P.K., (2004), Industrial Sector Reforms in Globalization Era, Sarup and
Sons, New Delhi, p. 70.
[19] RBI/2012-13/273 RPCD.CO.MSME & NFS. BC. 40/06.02.31/2012-2013.
[20] Ibid.
[21] Barua, P. C., (1992), Planning and Develoment of Assam, Mittal Publications,
New Delhi, p. 59.
[22] Ibid, p. 59.
[23] Daimari, P., (2008), Five Year Plans and Industrialisation in Assam, EBH
Publishers (India), Guwahati, Assam, p. 181.
[24] Ibid, p. 199.
[25] Economic Survey, Assam, 2007-08, (2008), Directorate of Economics and Statis-
tics, Assam, Guwahati, p. 79.
[26] Economic Survey, Assam, 2008-09, (2009), Directorate of Economics and Statis-
tics Assam, Guwahati, p. 78.
148
[27] Ibid, p. 77.
[28] Economic Survey, Assam, 2009-10, (2010), Directorate of Economics and Statis-
tics Assam, Guwahati, p. 103.
[29] The Sentinel, Guwahati, 27 Oct., 2013.
149
