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Sick Unit and Causes

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In today’s highly competitive world, where technological changes are occurring at a mind boggling pace, and locating production knows no boundaries, a country and its industry, which has not kept pace with the world cannot hope to survive. It is a well established fact, that a healthy industrial sector makes for a healthy financial sector, and unless, goods markets are healthy and vibrant, financial market cannot be the same. This holds for any country. Industrial units proven to be unable to financially sustain themselves are generally called "sick units" in India. The definition of sick SSI unit may be read as under:- 1.If any one of the borrowal accounts of the unit remains sub- standard for six months i.e. principal or interest in respect of any of its borrowal accounts has remained overdue for a period exceeding one year 2.There is erosion in the net worth due to accumulated losses to the extent of minimum 50% of peak net worth during the previous accounting year and 3.The unit has been in commercial production for at least three years.

Before we think about reviving sick units, we need to first consider the causes of their sickness, only then, can any remedies for their revival be considered.

Different governments at different times have taken measures to resolve the problem of sick units. These included: giving banks the option of converting the non-performing loans of the sick units into equity or rescheduling the loans of these units, with the hope that the units will again become solvent; or liquidating the business and selling off its real assets, if nothing else works

"Like other developing countries, India is a capital scarce country. We can not afford the luxury of dragging on indefinitely the process of either rehabilitation or winding- up of a sick unit. We have to ensure that a sick unit is quickly rehabilitated in case it is possible to do so. It is important, however, that before any measure is undertaken, to establish whether...