Professional Documents
Culture Documents
Financial
units
management
in
sick
Definition:
According to RBI, a sick unit is that which has incurred a cash loss for
one year and is likely to continue incurring losses for the current year as
well as in the following year and the unit has an imbalance in its financial
structure.
As per the definition by the Sick Industrial Companies Act, 1985. A sick
industrial unit is an industrial company (being a company registered for
not less than seven years) which has at the end of any financial year
accumulated losses in that financial year and in the financial year
immediately preceding it.
provisions over other laws except the provisions of the Foreign Exchange
Regulation Act, 1973 and the urban land (ceiling and regulation) Act, 1976.
Definition
The Sick Industrial Companies (Amendment) Act 1993 defines a sick industrial
company as follows:
A sick industrial company means an industrial company (being a company
registered for not less than 5 years) which has at the end of any financial year
accumulated losses equal to or exceeding its entire net worth
Causes of sickness
1) Internal Causes
2)External Causes
1) Internal Causes
Bad management ie inexperience, inefficiency, lack of professional
expertise, neglect and internal squabbles. Bad management could
be poor production management, poor labor management, poor
resources management etc. The Tiwari Committee report found
that 65% of the large sick units were affected by this problem.
Unwarranted expansion and diversion of resources
Poor inventory management of finished goods as well as inputs.
Failure to modernize the productive apparatus, change the product
mix to suit the changing environment.
Poor labor management relationship and the associated poor
worker morale and low productivity.
1. Lack of finance: This including weak equity base, poor utilisation of
assets, inefficient working capital management, absence of costing and
pricing, absence of planning and budgeting and inappropriate utilisation
or diversion of funds.
2. Bad production policies: The another very important reason for
sickness is wrong selection of site which is related to production,
inappropriate plant and machinery, bad maintenance of plant and
machinery, lack of quality control, lack of standard research and
development and so on.
2) External Causes
Energy crisis arising out of power cuts or shortage of coal and oil
have been a serious problem for many industrial units.
Inability of the units to achieve optimum capacity due to shortage
of raw materials, poor agricultural output due to natural reasons
etc.
Infrastructural problems like transport bottlenecks
Shortage of working capital / liquidity constraints
Artificial economic constraints eg. Government control of product
mix and prices, competition faced by the unit and excess capacity
in the industry.
1. Personnel Constraint: The first most important reason for the
sickness of small-scale industries is not-availability of skilled labour or
manpower wages disparity in similar industry and general labour invested
in the area.
2. Marketing Constraints: The second cause for the sickness is related
to marketing. The sickness arrives due to liberal licensing policies,
restrain of purchase by bulk purchasers, changes in global marketing
scenario, excessive tax policies by government, and market recession.
3. Production Constraints: This is another reason for the sickness which
comes under external cause of sickness. This arises due to shortage of
Causes of sickness:
The deliberations elaborated on the causes of industrial sickness in
Section III & IV indicate that a number of factors, both internal and
external are responsible for turning an industrial unit as sick.
The major causes pushing the industrial units towards sickness in
Bangladesh have been summed up in the following paragraph.
Management:
Production/ Technical
Location problem
Marketing
Lack of Market Planning
Inadequate Market Survey
Poor Collections
Defective Pricing
Finance
Personnel
Lack of Competence
Lack of Loyalty
Lack of Professionalism
EXTERNAL
Govt. Policy & Implementation
Frequent Policy changes
Lack of Proper Implementation of Industrial Policies
Liberal Import Policies
Poor Infrastructure / Frequent Power Disruption
Smuggling
Fiscal Anomalies
Exchange Rate Fluctuation
Lack of Co-ordination between various ministries and Govt.
Departments, etc.
Over-Saturation of particular industry type / Sector due to wrong policy
Non-availability of Raw-material, etc.
Environment:
Political Unrest
Labour Unrest
Market Recession
Delay in Project Implementation
Preventive Measures:
Experience indicates that small industrial units fall sick much to the occurrence
of external causes while medium and large industries get exposed to sickness
largely due to internal causes.
Though it would be hardly impossible to eliminate the causes altogether,
attempts should be made to undertake measures that would reduce the
magnitude of ailment in the industrial units for healthy survival and growth.
Viewed in this context, the following measures may be suggested to prevent
industrial sickness:
Macro-economic Policy changes: The industrial entrepreneurs should
make their own appraisal within a predictable macro-economic
environment. For this, policy changes should not be abrupt, have to be
pre-announced and gradual.
Sub-Sectorwise Long term Policy: For each sub-sector, the long-term
policy (e.g. for a period of 5 years) should be announced by the
Government so that entrepreneurs appraisal of the policy implications do
take a near-accurate shape.
Implementation of the Announced Polices: There should be effective
co-ordination amongst the various ministries, Govt. Departments and
relevant agencies involved for proper implementation of policies related
to industrialization.
Development of Small Industry Sector: The small industry sector is
characterized by low-level of technology, low equity base, traditional
management practices, poor marketing outlets and undeveloped subcontracting arrangement. The small industries should not be left to the
market forces only.
The following measures may be taken for preventing sickness in the
small scale sector :
Arranging access to institutional credit at reasonably lower rate of
interest.
Industrial Estates equipped with the required facilities should be set up in
suitable locations.
Entrepreneurship and Technology training should be arranged and then
linked with the provision of credit facilities. A national level training
institute for entrepreneurship development in the small scale sector
should be set up. Meanwhile, BSCIC Training Institute and DCCI
Business Institute may be strengthened for upgradation of capability of
the existing entrepreneurs.
10