INDUSTRIAL SICKNESS IN INDIA

PRESENTATION ON INDUSTRIAL SICKNESS

BY: NEHA SINGH PEMA KHANDO

•Industrial sickness has been growing from the last

decade. •

Many traditional and modern industries are now being effected by industrial sickness.

 •

Persisting problems are been faced by the industrial sector of the country

INTRODUCTION

CONCEPT

•TO LAYMAN –SICK UNIT IS ONE WHICH IS NOT

HEALTHY..

TO AN INVESTOR-ONE WHICH SKIPS DIVIDEND.

.TO AN INDUSTRIALIST-A UNIT WHICH IS

MAKING LOSSES..

TO A BANKER-WHICH INCURRED CASH LOSSES IN PREVIOUSE YEAR & LIKELY TO REPEAT

PERFORMANCE IN CURRENT & FOLLOWING YEARS

MEAN

ING

DEFINITION

Industrial sickness is defined in India as "an industrial company (being a company registered for not less than five years) which has, at the end of any financial year, accumulated losses equal to, or exceeding, its entire net worth and has also suffered cash losses in such financial year and the financial year immediately preceding such financial year

1- SHORTAGE OF LIQUID FUNDS TO MEET SHORT

TERM FINANCIAL OBLIGATION

2- DECREASING RATE OF RETURN

3- UNDERUTILISATION OF CAPACITY

4- ACCUMULATION OF EXCESSIVE INVENTORIES

1-Wrong location 2- Technological factors

3-Inexperienced promoters

4-Investment in unproductive capital

assets5-Long gestation period *Internal causes

*External causes

Causes of born sickness

Causes of achieved sickness

Causes of industrial sickness

1-POWER CUT •Lack of power electricity support •Shortage in electricity

2-ERRATIC SUPPLY OF INPUTS •Shortage of raw material •Lack of transportation facility •High price

EXTERNAL CAUSES

3-DEMAND AND CREDIT RESTRAINTS •No equal balance of demand and supply •Lack of credit facility •Storage expense •Change of out of fashion

4-GOVERNMENT POLICY •Change in government policy •Lack of government support •High authority to large unit

INTERNAL CAUSES

1-FAULT AT THE PLANING AND CONSTRUCTION STAGE •Wrong location area •Absence of market analysis •Unbalance capital structure

2-FINANCIAL PROBLEMS •Unable to repay •Lack of financial support from banks and financial institutions

3-DEFECTIVE PLANT AND MACHINARY •Lack of technical and professional skills •Lack of technology •Lack of efficient machinery •High maintenance

4-ENTREPRENURIAL INCOMPETENCE •Lack of market knowledge •Lack of inefficient professional skills •Lack of innovation

MANAGEMENT PROBLEMS •Inefficiency of management •Lack of expertise

LABOUR PROBLEMS •Lack of inefficient labour •Lack of coordination in work •Unsatisfied labour

Industrial sickness is growing at an annual rate of about 28% & 13% respectively in terms of

no .of units and outstanding number of bank credit.

It is estimated that as of today there are more then 2lakhs

sick unit.With an outstanding bank

credit of above Rs.7000crores.Nearly 29000 units are added

to sick list every year.

1-UNEMPLOYMENT 2-WASTAGE OF RESOUCES

3-LOSS ECONOMY AND GOVERNMENT 4-LOSS OF BANKS AND FINANCIAL

INSTITUTIONS 5-INDUSTRIAL UNREST

SUGGESTIONS TO PREVENT AND CURE INDUSTRIAL SICKNESS

1-Proper project planning • Location of project •Availability of raw material •Availability of labour & technical staff •Availability of finance at reasonable rates.2-Proper Market Analysis •Demand forecasting •Study of opportunities & threats of environment • Consumer tastes & preferences •Availability od reliable distributors3-Soft loans for sick units4-Avoid over-capitalisation.

STEPS TAKEN BY BANKS

1-Giving adequate working capital when there is shortage

2-Recovery of interest reduced rate3-Defining the special cell in the RBI

4-Arrange the special committee of state level in local branch for link between the

financial institution and government agency

MEASURES

POLICY FRAMEWORK OF THE GOVERNMENT1-SWOT analysis of industry2-Liberalisation of sick unit

CONCESSIONS BY THE GOVERNMENT1-Giving high facilities to large industries to take overthe small sector for revival2-High liberalization in terms of financial rather thanintervention3-Introduce the scheme for sick industry

A unit is defined as sick industrial company where:

•A company is registered for not less than 5 years

•It incurred cash losses for the current & 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 losses.

SICK INDUSTRIAL COMPANIES(SPECIAL PROVISIONS) ACT,1985 (SICA)

•Act extend to whole of India•Act is not applicable to SSI•All govt. industrial company

are brought under this act•provides legal identification

of sickness in industrial organization

•Act provides for establishment of BIFR

•Act also establish AAIFR for hearing appeals against

order of BIFR.

To report the sickness to the BIFR within 60days of finalisation of audited accounts , for the financial year at the end which the co has

become sick. The BIFR prescribes a different format for the report to be submitted by any interested parties

regarding the sickness. For eg-banks, other financial institutions.

When a co has been financial by a consortium of banks, it is the lead bank that should report to

BIFR about the sickness under advice to other participating bank in the consortium.

REPORTING TO THE BIFR

-When a case is referred to the BIFR, it is verified by the registrar of the BIFR as to whether the co is SICK.-BIFR accept the cases and notifies a date for hearing the case.-invites the information sick co to come to negotiation with the concerned financial institutions.-after the survey and hearing, the court summons the rehab to an operating agency.

DEFINITION ACCORDING TO COMPANIES (2ND AMENDMENT)

AVT,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 co.

BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTION (BIFR)

A central govt. agency that helps restructure bankrupt companies or

close down sick unit.-HM is the 3rd automobile company to

report in BIFR’S door after PAL, the maker of premier Padmini and FIAT

India.

-Chennai plant is being planned to turn in to a separate entity.-The Chennai unit does contract manufacturing for auto giants such as Mitsubishi and Isuzu.-It also intends to bring in foreign investment for its Chennai and West Bengal units.-it recently launched the the BS-IV Ambassador encore and is developing a sub-4metre version.-Besides Ambassador, HM also has winner trucks in its portfolio.-The company management says overall vehicle sales would increase to 7500 units this year.

CONCLUSIONIn a planned and underdeveloped

labour surplus economy like India ,industrial sickness can have

serious consequences. The sick units may be attempted to be turned around

through efficient management, change in top level executing a turnover strategy

  “sickness is mankind’s greater defect”.“HEALTH IS NOT VALUED TILL

SICKNESS COMES”