Definition of Industrial Sickness-Sick Industrial Companies Act, 1985 A unit is defined as sick industrial company where: a company is registered for not less than seven years It incurred cash losses for the current and preceding financial year. Its net worth was eroded. Even 50% or more of the net worth of the past 5 financial years is eroded because of accumulated losses3.Definition For Small Scale Sick Units Incurred losses in previous and current year Due to cumulative losses 50% or more of its peak net worth during past 5 years should be eroded. They must have continuously defaulted 4 consecutive installment of interest or 2 half yearly installment of principal. Large small scale unit all 3 criteria should be fulfilled small small scale unit - any 1 of the criteria should be fulfilled 4.Definition According to companies (2nd Amendment) Act, 2002 Sick Industrial Company means an unit which has accumulated losses in any financial year which are equal to 50% or more of its average net worth during 4 years immediately preceding such financial years ; or Failed to repay its debts within any 3 consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such company. 5.Magnitude of industrial sickness in India Industrial sickness is growing at an annual rate of about 28% and 13% respectively in terms of No. of units and out standing number of bank credit. It is estimated that as of today there are more than 2 lakhs sick units with an outstanding bank credit of over Rs7000crore nearly 29000 units are added to sick list every year.

Causes of Industrial Sickness in IndiaAccording to V.N Nadkarni, .some industrial units are born sick, some achieve sickness and-some have sickness thrust upon them.(1)Internal Causes of Sickness:Some industrial units have sickness inherent in them; they have the potential of sickness in them right from their inception. This would mean that such industrial units never have a chance of becoming viable and profitable. They generally develop sickness within two to three years or even earlier after they commence their activities.Any one or more of the following factors are responsible for such inherent sickness in industrial units or for born in sickness among industrial units.(a)Certain initial thing may go wrong:An entrepreneur may choose a wrong project; he may lack experience; his planning may be faulty or his entire calculations may be based on faulty assumptions regarding his own ability. He may be a beginner full of enthusiasm to start a new unit and things on any of the above grounds, may be wrong.There has been a great increase in the number of so-called consultancy services with inexperienced fresh MBAs on their bodies. In order to make quick money. These consultancy services give a totally wrong picture about the amount of investment involved, about projection of demand, capital cost, recurring expenses and so on.Along with this, various public financial institution and governments promotion agencies often paint an extremely rosy picture totally or greatly devoid of reality in the business world. The consequence of all these developments is the inevitable sickness right from the start.(b)Faulty Financial Planning:It is another serious factor. Under- capitalisation is often a very common cause and its signs become evident right from the time the unit starts functioning. In some cases, capital is adequate but a substantial part of it is misdirected into unproductive channels such as staff quarters and provision of ammonites for top executives even before production has commenced.Another reason may be inadequate provision for various contingencies which are bound to arise in the initial stages of a project or in fact any stage of the functioning of an industrial unit. This heavy outflow of funds becomes a cause of concern right from the start.

(c)Gestation Period:Often the gestation period becomes for too long than anticipated specially in the case of large scale industrial unit. This might be due to delay in the supply of capital goods to be imported or indigenous, defect in planning surfacing at a later stage, falling behind schedule in various phases of the completion of the project and so on.Such delays cause cost escalations, leading to capital shortages, liquidity problems, hike in production costs, and rise in prices and hence smaller than anticipated demand for the product of the industrial unit, adversely affecting its profits.(d)Wrong Location:Selection of a wrong location may create problems for an industrial unit and may lead to industrial sickness at an early stage. Thus, high technology based units are established in areas without skilled labour on supporting infrastructure facilities industries based on imported raw materials are established in regions without adequate transport and communication system.It is necessary to take into a account a number of factors such as availability of various infrastructural facilities like energy, water, transport and so on, apart from skilled labour, climate, etc. before the choice of location of a particular industrial unit is finalised any mistake in respect of any one of the factors would surely lead to industrial sickness at an early stage.(e)Technology:Technological factor also plays vital role. Adoption of inappropriate technology or obsolete technology or installation of sophisticated machinery for which spare parts are not easily available or of defective machinery may all lead to sickness of an industrial unit.

(f)Collaboration:Unsatisfactory collaboration agreements leading to legal complications may result in industrial sickness right from the start or at any later stage.(g)Demand Forecast:Wrong demand forecasts sudden appearance of competing substitutes on the market, radical and sudden change in the tastes of people as production of a commodity is being taken up may all cause industrial sickness.(2)Achieved Sickness:An industrial unit may start functioning and after some years may fall sick due to various internal causes that begin to affect the unit. Some of the important internal causes or factors that may result in industrial sickness are as follows:(a) As Nadkarni has pointed out bad management with lack of professional expertise, internal squabbles, indifference and inefficiency may result in industrial sickness after a unit starts functioning.(b) Expansion not warranted by available resources and beyond managements capacity unwarranted diversification and diversion of units resources, setting up new subsidiary concern or acquiring interest in another industrial unit, personal extravagance. Indulgences in corporate luxuries like having a fleet of air-conditioned cars, luxury guest houses with air-conditioning, etc. may contribute to industrial sickness.(c) Unsatisfactory materials, and especially inventory mismanagement, may contribute to industrial sickness unnecessarily heavy inventory would mean locking up a substantial amount of funds in an unproductive way for the time being and lack of scientific management of inventory may cause trouble to an industrial unit and affect its health.(d) Failure in the field of marketing (which is an essential element in the processes of production), faulty change in production-mix, failure to modernise production processing these days when rapid technological changes in all spheres of production are taking place, may all cause industrial sickness.In modern time where quick changes are taking place in all spheres like technology, advertisement and media handling, marketing etc. it is absolutely essential for any industrial unit to be adequately flexible so that it can adapt itself fairly quickly to the ever changing environment.Failure to do so or incapacity to do so many results in sickness of an industrial unit. Large industrial units with heavy capital equipment (as for example, in the case of Bombay textile industry) may face problems of adaptability and may fall an easy prey to industrial sickness.(e) Another major internal cause of industrial sickness is unsatisfactory labour-management relations. Inflexible and unhelpful attitude of management, politicalisation of labour-management in a factory, rivalry among trade unions in the same factory, leading to strikes or lockouts or resorting to go-slow tactics, may all result in low morale and inefficiency of workers, sabotage by workers, etc. all of which may cause industrial sickness. Estranged management-labour relations have caused sickness in the case of many large-scale industrial units.(3)External Factors Causing Industrial Sickness:It is quite possible that an industrial unit may fall sick far no fault of the entrepreneur and due to reasons entirely beyond his control the entrepreneur may be a practical and very careful man with adequate expertise and resources and the project may have been very carefully prepared, and yet the unit may fall sick far no fault of his. This is because various external factors influence the health of industrial unit. Following are some of the important external factors that may cause industrial sickness.(a) In the case of India, energy crisis, coal shortages and steeply rising petroleum prices have caused sickness among many industrial units. Energy shortages have become endemic and often anywhere from 25 to 50 per cent of electricity requirements are not met, with extremely adverse effect on production and revenue of industrial establishments, forcing many of them to fall sick.(b) In a number of cases the installed capacity of an industrial unit cannot be used to the maximum possible extent but only partly because of shortages of essential raw materials due to production setbacks in supply industries; or due to failure of monsoon, agricultural production and incomes have received a setback with adverse effect on demand from the agricultural sector for products like diesel pumps fertilizers, etc., and industrial units producing these goods continually for two or three years may find themselves in a condition of sickness, or import policies of some countries may change so that demand for certain goods produced for export purposes declines steeply. If this persists for some years, it would mean a great setback to the concerned industrial units making them sick as a consequence.(c) Infrastructural problems (such as heavy demand for railway services) may cause immense problems for industrial units in getting necessary raw materials in time and in sending out manufactured goods to different markets in the country and also abroad according to schedule. This would upset the smooth working of the industrial unit.(d) Non-availability of adequate credit due to depressed conditions in capital and money markets of credit squeeze policy of the government may upset the working of an industrial unit making it sick. The policy of credit squeeze followed by the Government of India for some time during 1970s was responsible for sickness of many industrial units, ultimately forcing some of them to close down.(e) Unfavourable government policies such as in respect of taxation, export imports, controls, rate of interest, foreign competition etc. may produce unfavourable environment for working of some industrial units, some of which for failure to successfully cope with all these constraints may fall sick or may close down completely.

Remedial Measures for Sick Industrial Unit in India

Industrial sickness (industry not in operation) in our country is a general phenomenon, which has existed along with healthy industrial enterprises. Sickness has registered a quantum jump with the arrival of the new economic order, ushered in by liberalisation and globalization. Industrial sickness can be found in any state of India as well as in some other countries. Industrial sick units caused unemployment and social unrest in an economy. Hence, suitable and phase wise remedial measures required through Government as well as by private sector participation. These sick unit revivals could be done through following measures: Adoption of latest technology & modern production process & equipment, proper infrastructure development around existing unit. Minimizing input costs and adopting economy of scale, adequate provision for financial requirements, exploring new market for its product. On time delivery & strict quality control measures should be adopted for its product, cost minimization, modernization of existing infrastructure with time, proper management should be in place to stop/reduce wastage, potential capacity utilization. Adopting true professionalism and developing proper work culture & ethics, fixing responsibility and making accountable to concern authority, promotion as per work efficiency not as per number of years in office. To drive knowledge transfer and exchange of ideas between the supply and demand sides of technology-enabled markets through a high quality, easy to use service. To provide a forum for a sound business voice to inform government of its technology needs and about issues, such as regulation. This could ultimately enhance or inhibit innovation in industry. Maximum exploitation of new technologies to gain competitive advantage. For funding of sick unit various model could be consider like public funding, public-private funding and competitive private funding. For country like India, technology should be cost effective and combination of labour-capital intensive instead of only capital intensive. To deliver improved industrial performance through innovation and new collaborations by driving the flow of people, knowledge and experience between business and the science-base, between businesses and across sectors. Incorporating innovative ideas to expand business rather than only focusing on bringing new technology into business. By bringing own distribution center, delivery time and price competitiveness can be brought in. Recognize and apply changing patterns of innovation before others do; Be more practical about market demand of your product rather than wholly depending upon research; Quality of product of global level/standard instead of focusing only on Indian market. Think beyond using latest technology skill needed to merger & acquisition of new business, design skills to develop new products and marketing skills to connect with new consumers and markets; Be medium for the spread of global best practice and new opportunities for domestic firms through linkages with global market and firms; Be master in using/applying new ideas (innovators) rather than merely generating new ideas (inventors) demanding higher standards and focusing managers on adopting and adapting external knowledge;Two types of innovation could be adopted,1. Product or services innovation; 2. Process innovation,1.Product or services innovation; this is all about launching new or improved products (or services) on to the market.Its advantages include (note links to marketing):a."First mover advantage which can include some of the followingb.Higher prices and profitabilityc.Added valued.Opportunity to build early customer loyaltye.Enhanced reputation as an innovative companyf.Public Relations e.g. news coverageg.Increased market share2.Process innovation, this is about finding better or more efficient ways of producing existing products, or delivering existing servicesIts advantages include:a.Reduced costsb.Improved qualityc.More responsive customer serviced.Greater flexibilityRecognising and acting upon new emerging opportunities within their industries before other firms do;Be focused on solutions rather than products or services.

Some other more general remedial measures for Industrial Sickness mentioned below: Procedural delay in getting licences/sanctions etc should be minimized, so that Cost over-runs should not happen. Rationalisation of wage structure, apt handling of labour problems, gradual reduction of excessive manpower, recruitment of highly trained/skilled personnel. Latest marketing techniques & marketing strategy with the help of audio, video & print media etc. for its product so that better revenue realization occurred, competitive pricing policy, proper feedback system should be in place for it product with best marketing research tool. Optimum utilization and mobilization of its resources with proper financial planning & dividend distribution policy. Proper financial management system to fill the gap of working capital and prohibit its unauthorized application. Minimizing undue interference of labour/trade union particularly West Bengal, Haryana, Orissa, etc. De-centralization of power, proper setup for labour management information system. Adequate system for proper check and balance, timely diversification. Research & Development is essential part of any organization but it should not involved undue expenditure.