Explain the factors responsible for industrial sickness and measures to tackle them in Small Scale Industries Sector (SSI)

Explain the factors responsible for industrial sickness and measures to tackle them in Small Scale Industries Sector (SSI)

It is a real fact that more than 70% of Indian population resides in rural areas of our country. But the majority of that population is still backward due to less support of external environment. The quoted quote that "wheel is the symbol of development" is proven false in case of Rural India because there is lack of development which may be because of unfair political environment and government negligence. SIDBI is an apex financial institution which provides financial support to the sick / small scale industries. So, we can say that SIDBI is the institution which engaged in the business of rural industrialization in India.
The small Industries Development Bank of India is Principal Financial institution engaged in development initiative in rural sector and improving the SSI unit. The another very important role is keeping by this Bank is that it is also encouraging SSIS and generating employment in rural India. The Bank also performing the rehabilitation duty and improving the performance of small Industries.
INDUSTRIAL SICKNESS IN INDIA
Industrial sickness specially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like – cotton, Jute, Sugar, Textile small steel and engineering industries are being affected by this sickness problem. As per an estimate 300 units in the medium and large scale sector were either closed or were on the stage of closing in the year 1976. About 10% of 4 lakhs unit were also reported to be ailing. And this position also remain same in the next decades. At the end of year 1986, the member of sick units in the portfolio of scheduled commercial banks stood at 1.47,740 involving an out standing bank credit of Rs. 4874 crores.
• Where the total number of large Industries which are sick were 637 units at the end of year 1985 increased to 714 units in the end of next year 1986.
• Likewise on the other hand the number of sick small scale units were also increased 1.18 lacks at the end of 1985 to 1.46 lakhs at the end of 1986.
• The bank amount which was outstanding in case of large industries for the same period also increased from Rs.2,900 crores to Rs. 3287 crores at the end of year 1986
• Dues of Small Scale sector also increased from Rs.1071 crores to Rs.1306 at the end of the year 1986.
• Of the 147, 740 sick industrial units which contains large medium as well as small scale involving the total bank loan (credit) of Rs. 4874 at the end of the year 1986.
CAUSES OF SICKNESS OF SSI'S
Most of the Indian authors and researchers have classified the different types of industrial sickness under two important categories. They are:
1) Internal Cause for sickness: Pertaining to the factors which are within the control of management. This sickness arises due to internal disorder in the areas justified as following:
a) Lack of Finance: This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.
b) Bad Production Policies : The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.
c) Marketing and Sickness : This is another part which always affects the health of any sector as well as SSI. This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions.
d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioural approach causes dissatisfaction among the employees and workers.
e) Ineffective Corporate Management: Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc.
2) External causes for sickness:
a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.
b) 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 govt. and market recession.
c) Production Constraints: This is another reason for the sickness which comes under external cause of sickness. This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.
d) Finance Constraints: Another external cause for the sickness of SSIs is lack of finance. This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization.
LENDING (FINANCING SCHEMES OF SIDBI)
A) Direct Financial Assistances
For the development of Industrial infrastructure for SSIs
• Venture capital/development scheme
• Equipment Finance Scheme
• Integrated Infrastructural Development Scheme
• Project Finance Scheme
• Schemes related to Marketing of SSI's Product
• ISO 9000 Scheme
• Micro credit financing scheme
• Short term & long term loan schemes
• Direct Discounting of bill
• TDMF Schemes
• Factoring scheme
• Pre & Post shipment financial assistance scheme
• Export bill financing scheme & so on
B) Indirect Finance by SIDBI
I) Refinance Assistance
a) Composite loan scheme for cottage, Village & tiny Industries
b) Scheme for women entrepreneurs Mahila Udyam Nidhi
c) SEMFEX Scheme
d) Single window scheme
e) RTDM Scheme
f) RISO-9000 Scheme
g) NEF Scheme
h) RSR Scheme
i) Scheme for SRTOs
j) Scheme for ST/SC & Physically Challenged
k) Other General Schemes
II) Scheme for Rediscounting of bills
a) For equipments
b) For Inland supply bills
III) Other support through various institutions
a) SFC's, SIDC, SSIDC, Bank to Intermediacies
b) To leasing / hire purchase companies.
c) To factoring companies
d) To special corporate entities and institutions which are engaged in the business of development of SSIs

Industrial sickness is essentially a managerial failure. Discuss the statement referring to some managerial decisions.

Industrial sickness is essentially a managerial failure. Discuss the statement referring to some managerial decisions.

We shall now focus our attention on the factors in the non –SSI sector first, and then on the SSI sector.
Non-SSI Sector: The factors responsible for industrial sickness can be divided into two categories:
Exogenous factors and Endogenous factors.
Some of the exogenous factors relate to such factors as government policies pertaining to
Production, prices and distribution. Change in the investment pattern following new
priorities in the plans I yet another factor. Further, shortage of power, transport, raw
materials, deteriorating industrial relations as some other factors to be noted in this
connection. Such factors are likely to affect all units in an industry. These factors may
cause sickness of the industry. If state policy is the cause of sickness, then corrective
action should be taken at the government policy level. An illuminating example of
government policy causing industrial sickness is the controlled cloth scheme. Another is the administered coal prices before nationalisation of coal mines.
The most important endogenous factor causing industrial sickness has been weak management or mismanagement. In a large number of units, sickness was caused by bad management. In a highly protective environment (prior to 1991’s new economic policy), many persons with no managerial abilities entered the field and set up industrial enterprises. Some of them indulged in malpractices. Some took a short-sighted view of development and concentrated on making quick money. Many managers found it easy to meet their cash loses through borrowed capital, rather than through efficiency improvements. In a significant number of cases, sickness has resulted from managerial failure to adapt the production pattern and methods to the changing market conditions. Not much was done to replace the obsolete machinery or to upgrade technology. In the absence of favorable atmosphere (incentives, competition etc.), quite a number of managers preferred their units to go sick. Some did so to seek financial help from the government. According to Mr. Prem kumar Jha (“To Nationalise or not to Nationalise”, The Illustrated Weekly of India, February 18,1979), “In fact as 4the take-over of sick units and textile mills has shown in every case what the Government has inherited is a load of worn-out machinery, a mountain of debts and a distraught workforce. Nationalisation in such circumstances has become a means of indemnifying the entrepreneur against the consequences of his misdeeds instead of punishing him – first he milks an enterprise dry, then hands it over to the government for salvage.”
George Fernandes makes a similar assessment when he says “I do not want the Government to be a scavanger for the private sector. Look at the National Textile Corporation. The NTC today has 111 textile mills. They were taken over after the private sector sucked them dry of all their money and abandoned them and 1,50,000 workers employed in them to their fate. In the Buter, Gresham and Gravan and other Engineering units takes over the Government after similar mismanagement.
Managerial faults and failures thus contributed a lot towards industrial sickness.
Other endogenous factors may be summarily stated as follows:
- Diversion of funds
- Wrong dividend policy
- Excessive overheads
- Lack o sufficient provision for depreciation
- Overestimation of demand, and
- Bad planning.