Industrial sickness refers to an industrial firm performing poorly over several years, incurring losses, and defaulting on debt repayment obligations. A sick unit continuously fails to generate surplus and depends on external funds. Signs of sickness include short-term liquidity issues, revenue and operating losses, and overusing external credit. Sickness is a gradual process resulting from various financial, technical, managerial, personnel and marketing causes. It has serious socio-economic consequences for employees, investors, and the national economy. Preventing sickness requires proper project location, market analysis, and avoiding over-capitalization.

1. INDUSTRIAL SICKNESS
Dr. Gitanjali Jindal

2. Meaning
• 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.
• A sick industrial unit may be defined as one when it fails to
generate surplus on a continuous basis and depends on
frequent infusion of external funds for its survival.

3. An industrial unit tends to show signs of financial
distress starting with :
Short term liquidity problems
Revenue losses
Operating losses
Moving in the direction of over use of external
credit.

4. Which type of units are sick
To a Layman
A sick unit is one which is not healthy.
To an investor
It is one which is not giving dividends.
To a Banker
It is a unit which has incurred cash losses in the previous years and is
about to repeat the same performance in current and following years.
To an Industrialist
It is unit which is making losses and about to close.

5. According to Reserve Bank of India
• 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.
such as, current ratio is less than 1:1 and there is
worsening trend in debt-equity ratio

6. The Sick Industrial Companies Act 1985 identifies sickness in
terms of cash losses for two consecutive financial years and
accumulated losses equalling or exceeding the net worth of the
second financial year.
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.”

7. Signals of Industrial Sickness
• Decline in capacity utilization
• Shortages of liquid funds to meet short-term financial obligation
• Inventories to excessive quantities
• Non submission of data to banks and financial institutions
• Irregularity in maintaining bank accounts
• Frequent breakdowns in plants and equipments
• Decline in quantity of product manufactured or service rendered
• Delay or default in the payment of dues such as provident fund, sales
tax, excise duty, employees, etc.
• Decline in technical deficiency
• Frequent turnover of personnel in the industry

8. (1)Socio-economic problem: Industrial sickness is a serious
socio-economic problem, which is result of unplanned
industrial growth. It is a universal problem.
(2)Outcome of various causes: Industrial sickness is the net
result of variety of financial, technical, managerial, personnel
and marketing causes faced by industrial units.

9. (3)Visible symptoms: Industrial sickness is visible by various
symptoms such as financial difficulties, low profitability,
inability to pay interest and loan instalments.
(4)Serious consequences: The consequences of industrial
sickness on employees, consumers, investors, management and
the national economy are serious. In addition, banks and term
lending institutions come in difficulties due to industrial
sickness.

10. (5) Gradual process: Industrial sickness takes place in a
gradual manner and not suddenly/overnight. Various stages are
involved in this process. They include normal unit tending
towards sickness, beginning of sickness and confirmed
sickness with normal features.

12. Magnitude of IndustrialSickness
• 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.

13. Causes of IndustrialSickness
 Causes of born sickness
 Causes of achieved sickness
Internal Causes
External Causes

14. Causes of born sickness
 Wrong location
 Inexperience promoters
 Technological factors
 Unproductive capital assets
 Long gestation period
 Demand forecasting

15. 1. Technical feasibility:
a) Inadequate Technical know-how
b) Outdated production process
2. Economic viability:
a) High cost of inputs
b) Break even point too high
c) Unduly large investment in fixed assets
d) Under-estimation of financial requirements

16. InternalCauses
3. Production management:
a) Poor capacity utilisation
b) High wastage
c) Inappropriate product-mix
d) Inadequate maintenance and replacement
4. Labour management:
a) Poor labour productivity
b) Excessive manpower
c) Lack of trained/skilled labour
d) Excessively high wage structure

17. InternalCauses
5. Marketing management:
a) Lack of market research and market feedback
b) Defective pricing policy
c) Dependence on limited number of customers
6. Financial management:
a) Inadequate working capital
b) Deficiency of funds

18. InternalCauses
7. Administrative management:
a) Excessive expenditure on R & D
b) Incompetent management
c) Lack of timely diversification

19. Infrastructural bottlenecks:
a) Irregular supply of critical raw materials
b) Transport bottlenecks
c) Chronic power shortage
Government controls and policies:
a) Government price controls
b) Abrupt change in government policies
c) Fiscal duties

20. External Causes
Market Constraints:
a) Revolutionary technological advances rendering one’s
products obsolete
Extraneous factors:
a) Natural calamities
b) Political situation
c) Sympathetic strikes

21. Suggestions To Prevent And Cure Industrial Sickness
Proper 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 of reliable distributors
 Soft loans for sick units
 Avoid over-capitalisation.

22. THANKS