Factors Contributing to Sickness in the SSI Sector

Topics: Industrial Revolution, Government, Bankruptcy Pages: 12 (3934 words) Published: May 3, 2012
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. Nayak Committee set up by the Reserve Bank of India in 1991 dealing with aspects of adequacy and timeliness of credit to SSIs had gone into the issue of sickness in detail. Reserve Bank of India has taken action on its recommendations which relate to modified definition of sick SSI units, reduced rate of interest for rehabilitation, prompt viability studies/nursing programmes of identified sick units, setting up of cells at important regional centres and Head Office to deal with sick industrial units and provision of expert staff, including technical personnel to look into technical aspects. RBI is also advising its officers from time to time to activate State Level Inter-Institutional Committee. The other main decisions such as: to set up Sub-Committee of SLIIC in all the States/ UTs, to invite SSI Entrepreneurs, Bankers and other concerned Government Departments to discuss and arrive at the rehabilitation package. meeting of Sub-Committee to be held every two months and that of SLIIC every quarter, to set up district level committee of SLIIC in districts having SSI concentration, have been conveyed to all State Governments for implementation.

Though Budget 1998-99 does not spell out measures or revival of sick units directly, there are measures announced in the Budget aimed at the overall growth of SSI sector which, inter-alia, will be instrumental in combating the incidence of sickness. It is a fact that inadequacy and delay in credit to SSI sector ultimately renders the SSI units sick. In 1998-99 Budget, a number of initiatives have been proposed to overcome credit problems such as:-

- Working capital limit enhanced to Rs. 5 crores

- Enhanced powers to bank managers of specialised bank branches

- Delinking SIDBI from IDBI

- Strengthening the mechanism for discounting bills

- Amendment to The Interest on Delayed Payments Act

These measures would accelerate the flow of credit and keep a check on the incidence of sickness.

RBI had set up a one man Committee under the Chairmanship of Shri. S.L.Kapur, former Secretary (SSI&ARI), to look into various problems, germane to credit flow to SSI sector and suggest appropriate measures for their redressal. The Committee in is report submitted to RBI had, inter-alia, recommended the following so that sick SSIs are rehabilitated quickly :-

- The definition of sick SSI unit may be changed to 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. - SLIICs should be converted into Statutory Bodies under a special Statute and given adequate statutory and administrative powers to enforce their decision on bankers and financial institutions and other agencies concerned with the rehabilitation of potentially viable SSI units.

- Branches/benches of SLIICs could be established in Districts having large concentration of SSIs. Besides, potentially viable sick units should be dealt with by separate specialised branches as far as possible for the purpose of rehabilitation.

- To encourage banks to take up rehabilitation of potentially viable sick SSIs some relaxation in Income Recognition and Asset Classification norms should be provided. A period of one year...
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