Problems of sickness are omnipresent but the dimensions differ. The approach in developed economies is to restore a unit to normalcy by way of restructuring methods within a short span of time or else close it down once for all. Such methods may not be suitable to our country on account of prevalent wide spread unemployment scenario. The Economic Survey (1989-90) mentioned about the prevalent of sickness in the country. The survey mentioned ‘growing incidence of sickness has been one of the persisting problems faced by the industrial sector of the country. Apart from that, sizeable funds of banks and financial institutions are blocked up, which impair the banks profitability and their ability to recycle fund for productive areas. This has also affects the healthy growth of the industrial economy. There are various criteria adopted by different authorities for identifying a sick small-scale industry.
Industrial sickness is considered a normal phenomenon in the process of industrial development, if it is isolated and sporadic. But in India, the scale and spread of industrial sickness is such that it has become a serious problem in the economy. It is blocking not only huge scare resources but also affecting a large section of population, therefore, creating social besides economic repercussions. Serious efforts are required so that it remains at reasonable level, if it all incidence is high, sickness be identified at incipient stage and sincere efforts be made by financial institutions in the process of revival and rehabilitation, and unviable units be settled quickly so to spare resources for better alternative uses. Like other economic problems, industrial sickness in Indian economy needs treatment based on sound diagnosis that takes all the relevant parameters and interests into account.
TABLE – 1 Overall Industrial Sickness During 1991-2001
Source: Report of the Study Group on Development of Small-Scale Enterprises, Planning Commission, Government of India, March 2001, Economic Survey 2001-02 and www.rbi.org.in.
From the above table it could be seen that during 1991-2001, more than 28 lakh units were reported in the portfolio of scheduled commercial banks to be the sick/weak units having grown at an annual average rate of 2.2 per cent. Wherein about 99 per cent units were found to be SSI units with 2.1 per cent growth rate and about one percent was a non-SSI unit with 3.7 per cent growth during the same period. As per the details given by the Reserve Bank of India the total Sick Units has decreased to ‘167980 units in 2003 from 177336 units from 2002. The potentially viable and viable units under nursing were 3626 and 993, amount outstanding were 624.71 Crores and Rs.382.32 Crores during the year 2003’(rbi.org.in).
TABLE- 2 Overall Industrial Sickness and Outstanding Amount During 1991-2001
Source: Report of the Study Group on Development of Small-Scale Enterprises, Planning Commission, Government of India, March 2001, Economic Survey 2001-02 and www.rbi.org.in.
Outstanding amount in all those units was about Rs.175 thousand crore with average annual growth rate recording 9.43 per cent both SSI and Non-SSI units. In SSI units it was about Rs.41 thousand crore with growth rate of 5.06 and in non-SSI units it was about Rs.134 thousand crore with a growth rate of 10.73 percent during the years 1991-2001.
TABLE-3 Overall Industrial Sickness During 1991-2001
Source : Report of the Study Group on Development of Small-Scale Enterprises, Planning Commission, Government of India, March 2001, Economic Survey 2001-02 and www.rbi.org.in.
Almost 99 per cent of the total sick/weak units were SSI units blocking only about one–fourth credit. Contrary-wise, about 1 per cent non-SSI units blocked about three-fourths credit. One important point to be considered about sickness is the viability position. The higher the number of non-viable units, the low possibility of sick/weak units to be revived.
The Third All India Census on Sickness in SSI highlighted the following points in relation to sickness; namely, sickness in the total SSI sector was of the order of 1 per cent, whereas in the registered and unregistered SSI sectors it was 3.38 percent and 0.64 per cent respectively. The maximum number of sick units was located in West Bengal, Kerala, Maharastra, Karnataka, and Andhra Pradesh. About 59.53 per cent of the sick units were located in these five States. Units having loan outstanding with institutional sources like banks and financial institutions, sickness was about 19.6 per cent in the registered SSI sector and 16.61 per cent in the case of unregistered SSI sector. In the Total SSI sector, this was 17.8 per centage. The Total SSI sector accounted for 7.82 per centage. Lack of demand and shortages of working capital were the main reasons for sickness/incipient sickness in both the registered and unregistered SSI sectors.
The problem of industrial sickness not only has financial aspect but also human aspect. Agony and sufferings of workers involved in the sick units cannot be reflected in the number of companies and total loan outstanding shown generally to indicate the incidence. The sickness not only affects the workers but of their families and thus a part of society. In the present situation, when production-pattern is turning more technology-savvy and employment squeezing, the opportunity for more employment scenario is far from sight. The various consequences are huge financial losses to the banks and financial institutions, loss of employment opportunities, emergency of industrial unrest, adverse effect on prospecting entrepreneur, wastages of scarce resources and loss of revenue to Government.
TABLE -4 Incidence of Industrial Sickness Tamil Nadu (Rs. in Crores)
Source : Government of Tamil Nadu, Economic Appraisal 2002-03
Industrial sickness affects the performance of the sector. The sick-SSI units in Tamil Nadu at the end of March 2000 had decreased to 11602 from 12289 as compared to the end of March 1998. However, the amount of bank credit outstanding had increased to Rs.612.20 crores as against Rs.456.93 crores as at the end of March 1998. It is noted out of 11602 sick-SSI units as on March 2000 only 362 units (3.12%) were identified as potentially viable, 84 units (0.72%) were categorized as viability yet to be decided and the rest 11156 units (96.16%) as non-viable units.
As per the RBI report as on March 31, 2001 there were 10,276 sick industrial units in the State comprising of 9959 SSI sick units and 317 non-SSI sick units. At the end of March 31, 2001, the number of SSI-sick units in the State, which declined to 9959, and bank credit outstanding blocked by these units also decreased to Rs.589.80 crores when compared to the previous year is a welcome sign. There are two main issues in the case of sick SSI units. One is the existence of large number of sick units, which are non-viable, and the other is the rehabilitation of potential units. Among 9959 SSI-sick units in the State, 9104 units (91.41%) were classified as non-viable and 631 units (6.34%) were viable for rehabilitation. However, the viability of 224 units (2.25%) is yet to be decided. The number of non-Ssi sick/weak units increased to 317 in 2000-01 from 285 during 1999-2000 and the bank credit outstanding had also increased to Rs.1857.28 crores from Rs.1668.49 crores respectively.
As on 31st March 2002, 11513 SSI units and 334 Non-SSI units came under industrial sickness in the State with a bank credit outstanding of Rs.675.11 crores and 1783.31 crores respectively. It is noted that within a short span of one-year period, 1554 SSI units and 17 Non-SSI units become sick in the State. The share of industrial sickness of the State at the national level was 6.49 per cent for the SSI units and 10.24 per cent in the case of Non-SSI units.
TABLE -5 Sick/Weak Non-SSI and Sick SSI units Select Major States in India
Source: Reserve Bank of India, Mumbai
The number of Non-SSI sick/weak units in Tamil Nadu had increased from 198 in March 1998 to 285 in March 2000. The corresponding details for All India are 2476 and 3164 respectively. It may be noted that Tamil Nadu’s share in the total Non-SSI sick/Weak units had remained around 8 to 9 per cent. Among the major States, highest numbers of SSI sick units are in West Bengal, Andhra Pradesh, Tamil Nadu and Maharastra, Gujarat and Karnataka in that order. The numbers of Non-SSI sick/weak units are the highest in Maharastra followed by Andhra pradesh, Tamil Nadu, Gujarat, Karnataka and West Bengal.
TABLE -6 Sick/Weak Non-SSI and Sick SSI units Select Major States in India
Source : Reserve Bank of India, Mumbai
As far as the bank credit outstanding in the case of Non-SSI Sick/Weak units the first three places ranked are Maharastra, Andhra pradesh and Gujarat. The fourth and fifth place shared by Tamil Nadu and West Bengal. Karnataka occupies the last and sixth place. Considering the SSI Sick units Tamil Nadu occupies first position and then Maharastra shares the 2nd place. West Bengal, Andhra Pradesh, Gujarat and Karnataka shares 4th to 6th respectively. This calls for increasing the viability of the industrial units by conducting market survey for the products, enhancing the quality of the products and good labour management relationship.
The Third All India Census of SSI units conducted by Government of India shows that of the total number of 3.09 lakh permanently registered SSI units in Tamil Nadu, only 1.68 lakh are working, the remaining 1.41 Lakhs units are closed as on 2001-02. Factors, which have mitigitated against the successful working of the industrial units, are mainly inadequate market for the products, poor quality, sloppy management, non-availability of raw materials at cheaper rates, and infrastructural constraints. Lack of demand and shortage of working capital are the principal reasons for sickness/incipient sickness for SSI units coupled with non-availability of raw materials, power shortages and to problems of labour, marketing, and equipment and management systems. These problems interact upon one another mutually to reduce the gross output continuously, unbalancing their revenue and expenditure and finally fall in the trap of shut down.
In the foregoing pages, various reasons attributed for the sickness has been discussed and now a resume of the above has been presented. Various studies reported that lack of management expertise, lack of adoption of sound business principles, labour problems, under-utilization of capacity, lack of finance to meet working capital needs, lack of demand and non-availability of adequate raw materials. Sickness should be detected at an early stage for this purpose, Natarajan, Krishnamurthy and Rao found seven symptoms of sickness, namely, excessive and continuous dependence on external fund, negative networking capital, under utilization of installed capacity, frequent interruptions in sales, delay or default in paying the periodical installments on terms loan, cumulative losses resulting in an erosion of capital, and stoppage of production for a long period.
During 1991-2001, the overall industrial sickness in terms of sick SSI units and outstanding amount in terms of SSI units has decreased for the periods from 2000 to 2001 and 1996-2001 respectively. Tamil Nadu ranked third place in terms of number of sick SSI units and Non-sick SSI units. As far as bank credit outstanding in the case of Non-SSI sick/weak units Tamil Nadu occupies fourth place and placed in first position in terms of number of SSI sick units.
Dr. N. Rajeshkumar, Assistant Professor in Economics, Department of Economics, Thiru. Kolanjiappar Govt. Arts College, Vridhachalam – 606 001.
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