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 it is worth reviving the unit at all. In industrialized countries, like the US and the UK, where capital markets are well developed, and there exist active markets fo corporate control, the process of allocation of capital to its most efficient use is achieved rather easily, as sick or under-performing units, are either liquidated or taken over by healthy units.

The Governmenof India, in order to tackle the problem of industrial sickness, had set up a Board for Industrial and Financial Reconstruction (BIFR), under the purview of Sick Industrial Companies (Special Provisions) Act,1985 (SICA) The BIFR is also the authority that must approve takeover of a sick unit. The BIFR is assigned with the responsibility of hearing cases that apply for being declared sick and deciding whether or not the unit deserves to be termed "sick." The ultimate recourse in tackling a sick unit is its liquidation by liquidators based in different parts of the country, but revival possibilities are many to avert liquidation. With the Indian economy opening up progressively since 1991, foreign investors may find take-over of sick units a better alternative to building a unit from scratch. But they have to obtain the approval of the BIFR. Not all sick units are beyond redemption. A genuine lack of demand for products is RARELY the reason for an industrial unit to go sick in India. Sickness in SSI sector is attributed to a number of factors like inefficiency in management, over ambitious projects, dispute among partners and non-availability of credit which is one of the major factors responsible for rendering SSI units sick. Government of India has taken various measures from time to time to detect sickness at the incipient stage and rehabilitation of sick units in the small scale sector. Most of them go sick due to inefficient management, over-staffing or obsolete production equipment and techniques. A few cases could arise from dishonesty of the company's promoters who deliberately let...
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