DMPQ- What are the main causes of Industrial sickness ?

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Industrial sickness has become a major problem of the India’s corporate private sec­tor. Of late, it has assumed serious proportions. A close look reveals that there are, at least, five major causes of industrial sickness, viz., promotional, managerial, technical, financial and political.

An industrial unit may become sick at its nascent stage or after working for quite some time. For instance, two major traditional industries of India, viz., cot­ton textiles and sugar, have fallen sick largely due to short-sighted financial and depreciation poli­cies. Heavy capital cost escalation arising out of price inflation accentuates the problem. The his­torical method of cost depreciation is highly inad­equate when assets are to be replaced at current cost during inflation.

Moreover, since the depre­ciation funds are often used to meet working capi­tal needs, it does not become readily available for replacement of worn-out plant and equipment. The end result is that the industrial unit is constrained to operate with old and obsolete equipment, its profitability is eroded and, sooner or later, the unit is driven out of the market by the forces of compe­tition.

In Dec. 1980 the total number of sick units was 24,550, involving outstanding bank credit of Rs. 1,809 crores. As at the end of March 2000, the total number of sick units stood at 307,399 involving an outstanding bank credit of about Rs. 23,656 crores. Of these 14,793 were po­tentially viable, 278,423 were non-viable and the viability of the remaining 14,183 has not been decided.

Three major industries affected by indus­trial sickness are jute, engineering goods and tex­tiles. Some of the industries such as the real estate, light consumer goods, automobile, diamonds and many others are reeling under the impact of steep fall in demand, inadequate supply of finance, large proportion of non-performing assets and con­straints of finance due to huge amounts of funds getting blocked in ageing receivables.

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