What are the causes of Industrial Sickness |Reasons for Industrial Sickness
Meaning of Industrial Sickness:
The strength of the industrial sector, by and large, determines the soundness of the economy.
A developing economy like India cannot afford the growing sickness in industries as it results in a colossal wastage of physical, financial and human resources. In the presence of the resource crunch, the industrial sickness becomes all the more an alarming problem. Industrial sickness usually refers to a situation when an industrial firm performs poorly, incurs losses for several years and often defaults in its debt repayment obligations.
The Reserve Bank of India has defined a sick unit as one “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, such as, current ratio is less than 1: 1 and there is worsening trend in debt-equity ratio.”
The State Bank of India has defined a sick unit as one “which fails to generate an internal surplus on a continuous basis and depends for its survival upon frequent infusion of funds.”
Most of the Indian authors and researchers have Classified the different types of industrial sickness under two important categories i.e. internal and external causes.
- Internal Causes of industrial Sickness
- External Causes of industrial Sickness
Internal Causes of industrial sickness
Lack of Finance :This problems are generally faced by small units. Often the financially base of the small unit is very week .They generally borrow from their own known sources or banks, rather than approaching market .Generally, they are unable to meet their debt obligation in time and these debts accumulate. Bank normally do not help at this stage when symptoms being to show the problem and sickness become chronic.
Management Problem :Another reason for the industrial sickness is ineffective or bad corporate management which includes:
- Improper corporate planning
- Poor Inventory Management
- Lack of Integrity in top Management
- Lack of coordination and control
- Poor implementation of Projects etc.
Improper Choice of Technology: Small enterprises cannot afford to take technical guidance from expert in choosing proper machinery. An improper choice of technology, unsuitable product mix and single product technology contribute to industrial sickness.
Mismanagement : Industrial sickness could be because of mismanagement in various functional areas like finance, production, Marketing and personnel resulting from wrong management decision.
Incompetent Entrepreneurs :Lack of knowledge about market, customers, costing, marketing ,accounts, finance etc. could also leads to industrial sickness.
Bad Production Policy :Another important reason for sickness could be wrong production policies like:
- Wrong selection of product location
- Defective selection of Plant & Machinery
- Bad maintenance of Plant & Machinery
- Overestimation of demand
- Lack of quality control
- Lack of standard Research & Development and so on.
Increase in cost due to delay in implementation of project : Major project have to be implemented in time .Time is money .Any delay causes problem of lost business. it will be reason for loss. Especially the project of big size have to be planned properly. The supply of money and the schedules of the payment are to be carefully done.
External Causes of industrial Sickness
Recession in the Market: Industrial sickness is also caused because of increase in recession in local and global market. Recession leads to downturn of economy ,lending to major loss and closure for various industrial units.
Decline in Market Demand for the product: A product may reach a stage of decline. This happen when new and better products invade the market and made the old product redundant.
Excessive competition in the market: Excessive competition in the market will justify the survival of only the fittest firm. The high cost unit over time will become weak and fall sick.
Marketing Constraints: Another external reason for industrial sickness is marketing Constraint .The sickness can arrive due to:
- Changes in global marketing scenario
- Changes in Technology
- Changes in consumer behavior
- Changes in customer tastes, preference and demand
Government Policy: Frequent changes in government policies(in respect industrial licensing, taxation, Power tariff, imports, exports, duties etc.) may also leads to industrial sickness.
Shortage of Power Supply: Without pawer supply and fuel the company cannot run the manufacturing activates. Loss of production due to the unavailability of the power supply is becoming reason for companies to go in loss.
Delay in getting any financial assistance: The organization runs on the basis of money available when required . Financial institutions have back for this purpose. The delay of raw material, non-availability of good manpower, etc. cannot be improve without the availability of finance.
So this all are the causes of Industrial sickness.