Sickness in the industrial units is not a new phenomenon as is evident in the developing countries. Even in the industrially advanced countries of the world, varying degrees of sickness are found to occur. But sickness assuming an epidemic shape creates concerns to the policy makers and stakeholders. Statistical data suggests that small scale industries are more prone to sickness as compared to medium and large scale industries.
The primary objective of this study is to ultimately have an understanding of the phenomenon of Industrial sickness and seek to divine the root causes for the same.
The study was carried out through an extensive research which sourced data through primary and secondary sources of data. Executives from erstwhile Sick firms were interviewed through depth interviews to ascertain the reason for their sickness and after dissecting all the said cases via a root cause analysis a common list of reasons for sickness emerged.
Finally after collating the said reasons, the study on finding a common thread of possible causes humbly sought to provide possible solutions to the same.
Scope of the Research:
The research project covers only Units that classify as SSI Units.
The study only covers industries based in the state of Goa.
The Study consists of a series of documented interviews which have then been analyzed by the researcher.
Limitations of the study:
The research was conducted in a limited duration of 9 weeks.
Extensive secondary data with regards to Data on Sick Goan industries was found to be lacking.
A large number of respondents weren't trackable due to shifting of base of operations or general unwillingness to discuss their problems.
Methodology:
Research Design
The objective of this investigative study was achieved by means of a series of structured and unstructured interviews.
Exploration:
Quantitative design: Raw data was collected from various sources like the Department of Industries, Goa.I.D.C and the World Wide Web. Other sources for data included data from the lead bank (SBI) and Libraries.
Qualitative Design: A structured interview was then conducted with owners of sick industries to ascertain causes of sickness.
The interview permitted more direct comparability of responses, question variability had been eliminated and answer variability was assumed to be real. It has to be noted during the course of interview the interview's neutrally was maintained. During the course of interview behavioral observation study was also done on the interviewee (non verbal behavior, extra linguistic behavior).
Techniques like Laddering were used, basically in which you start with questions about external objects and external social phenomena, then proceed to internal attitudes and feelings
Collection and Sources of data:
Primary data
Personal interaction (informal/formal) with the entrepreneurs.
Secondary data
Internet
Banks
Directorate of Industries, Statistical Department
Sample plan: Random Sampling
Sample Units: Proprietors
Sample size: 44 Companies
Importance/benefits of the study
This project will shed light on the intrinsic factors which have lead to the sickness and shutting down of many small scale units in Goa.
Will attempt it diagnose the root symptoms of sickness and thus forge a series of do's and Don'ts for entrepreneurs so that businessmen in the future will be able to rapidly seek and address the telltale signs of sickness in their companies.
INDEX
Sr.no
contents
Page no.
1
Introduction
10
4
OVERVIEW OF the SSI SECTOR IN GOA
14
5
DATA ANALYSIS
16
6
Signs of Sickness
18
8
Suggestions
18
9
conclusion
19
10
Experience and learning's
20
11
bibliography
22
12
Annexure: Interview Sheets
23
INTRODUCTION
Sickness in the industrial units is not a new phenomenon as is evident in developing countries. Even in the industrially advanced countries of the world, varying degrees of sickness are found to occur. An industrial unit may face a number of odds during its implementation and operation stage because of a number of factors in the environment - internal and external.
If the problems perpetuate and do not permit the unit to pursue the normal course of operations leading to reasonable utilization of capacity, generation of surplus, debt servicing, etc, it can be presumed that some kind of sickness has engulfed the unit and if this trend grows unchecked, it would adversely affect production and employment in the country besides other socio-economic repercussions.
However, it is also recognized that in a market economy, the weeding out of inefficient industrial units is but a natural outcome or Survival of the fittest in Darwinian terms.
It is wrongly assumed that the exit of the non-competitive and loss-incurring units should not pose difficulty to any society. But sickness assuming an epidemic shape creates is a serious cause of concern to the policy makers and stakeholders. Experience suggests that small scale industries are more prone to sickness as compared to medium and large scale industries. In this context, sickness in small industry should not be left only to the market forces. Creation of objective conditions and enabling environment through suitable policy support are essential for sustained growth of the small industry sector in the developing economies. It is, therefore, imperative to diagnose the causes of sickness so that preventive measures are suggested. Even if a small unit turns sick despite taking all possible precautionary measures, efforts should be made to find out the possibility of its revival. This warrants appropriate package of restructuring and rehabilitation strategies. If the unit's survival is still under threat, it should be better allowed to die a natural death.
INDUSTRIAL SICKNESS AND INDIA
In India, Industrial Sickness had increased at an alarming rate in the eighties and has also increased in the nineties particularly in the small scale sector.
The Small Scale industry in India is defined on the basis of investment in plant and machinery. The investment limits varied over the passage of time.
This limit was Rs. 35 lakhs from 1985-86 to 1990-91 and Rs. 60 lakhs from 1991-92 as of today. Similarly, the small scale ancillary units are defined as having investment in plant & machinery below Rs. 75 lakhs. The incidence of sickness in the small scale sector is a matter of serious concern in India. SSI sick units which accounted for 94% of the total incidence of industrial sickness in 1980 have increased their share to 99% in the overall profile of industrial sickness in 1990. Large and medium scale sick units account for only 1% of the total incidence of sickness. But in terms of locked up bank credit, they represent 75% of the total bank credit outstanding from all sick units. On the other hand, the locked up bank credit in the small scale sick units which constitute 99% of the total incidence of sickness, represent only 25% of the total bank credit outstanding from all sick units. Again, of the identified SSI sick units, 92% are found to be unviable.
Industrial units proven to be unable to financially sustain themselves are generally called "sick units" in India. Merely financially-troubled companies do not automatically become a sick unit: it has to be designated as such by the federal government. The Board for Industrial and Financial Reconstruction (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 BIFR is also the authority that must approve takeover of a sick unit. 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.
Definition of Sick Industry by Different Institutions
Industrial sickness in India has been defined by different institutions in different ways.
The Reserve Bank of India (RBI) has given two definitions - one for large and medium scale units and the other for small scale units. According to the RBI definition, large and medium scale sick unit is one which incurs cash losses for one year and which, in the judgement of the bank, is likely to continue to incur cash losses for the current as well as the following year and which has an imbalance in its financial structure, such as current ratio of less than 1:1 and worsening debt equity ratio. RBI's definition of a sick small scale unit follows like - if it has (a) incurred cash losses in the previous year and is likely to incur cash loss in the current year and has an erosion of 50% or more of its net worth; and/or (b) made defaults in payment of four consecutive quarterly installments of interest or two half-yearly installments of principal on the term loans and there are persistent irregularities in the operation of its credit limits with the bank.
The Study Team of the State Bank of India in its report on Small-Scale Industry Advances defined a sick unit as "one which fails to generate internal surplus on a continuing basis and depends for its survival upon frequent infusion of external funds".
The Government of India enacted the Sick Industrial Companies (Special Provisions) Act, 1985. As per the revised definition provided by this Act, a sick industrial company would be one which is registered for a period not less than five years and whose accumulated losses are equal to the sum of paid up capital and free reserves.
Govt. Concessions and Incentives for the SSI Sector
The Government of India has provided various concessions and incentives to the SSI sector for their sustained growth, which have briefly been outlined here as under :
Assisting new SSI units on soft terms by lending institutions,
Reservation of Certain Industries for the SSI sector,
Incentives related to land/shed financing, machinery and raw-materials,
Provision of facilities within the Industrial Estates, and
Excise duty exemption and price preference
Govt. Measures to deal with the Problem of Industrial Sickness
Various measures have been initiated by the Govt. of India in order to deal with the problem of sickness in industries. These may be briefly described here.
The RBI set up a Sick Industrial Undertaking Cell to monitor the performance of the banks in identifying the sick units and initiating appropriate remedial measures, and to co-ordinate the efforts of banks, financial institutions, Govt. and other agencies involved.
RBI advised banks to take urgent measures to set up Special Sick Unit Cells to carryout periodical inspection and to undertake diagnostic studies for techno-economic viability.
The Ministry of Finance of the Govt. of India and RBI provides supportive measures for rehabilitation of viable sick units in terms of relief in excise arrears, reduction in interest rate on term loans and waiver of penalty applied to cash credit facility.
The Industrial Reconstruction Corporation of India (IRCI) was set up by the Govt. of India for industrial revival and rehabilitation of sick and closed industrial units.
Sick Industrial Companies (Special Provisions) Act (1985), was enacted in 1987 as a landmark in Govt. Policy to combat the problem of sickness. Under this Act, the Board for Industrial and financial Reconstruction (BIFR) came into being with vast powers aimed at assessment and implementation of revival plans for the sick industrial companies. However, this Act has no applicability for the sick SSI units.
On the other hand, the measures aimed at revival of sick industries could not achieve a desired breakthrough in curbing the magnitude of sickness due to their inadequacies and implementation bottlenecks.
Small Scale Industries (SSIs) policy
The Goa state policy proposes to develop small-scale industries in order to generate employment within the state.
The principal measures outlined in the policy are:
Pursue a cluster development approach in order to help industries avail a common infrastructure
Emphasize developing handicrafts and handloom units in rural areas of the state
Treat any revived industry as a new industry and waive arrears of sales tax, entry tax and any other state government dues; encourage the closing of industries that cannot be salvaged
Employment subsidy to all small scale, medium and large industries to generate employment within the state
Sales tax exemption on the sale of finished products for a period of 15 years to SSI units and 12 years for medium and large-scale units.
Interest subsidy scheme to all new small scale and tiny units in the manufacturing sector
Provide capital support to entrepreneurs in the state. The support will be provided to units manufacturing goods, and units in the tourism sector except hotels and resorts
The policy also proposes to provide financial support towards quality certification and patenting. Additionally, financial assistance will also be provided to export manufacturing units. These measures are introduced to engender industrial growth and nurture quality consciousness and focus on R&D.
OVERVIEW OF the SSI SECTOR IN GOA
After liberation and with the introduction of planned economic development, the state has made rapid strides in the field of small industry development.
An overview of the growth in the number of registered small-scale units in Goa since 1974 is given in the following table-
Years
No. of S.S. Units
Registered
Employment
(persons)
Investment
(Rs. lakhs)
Prior to 1974
686
4811
1202.633
1974-75
388
3110
869.25
1978-81
373
2655
536.66
1981-86
1145
8881
1227.62
1986-88
679
3200
1247.58
1988-90
653
3479
2110.13
1990-91
196
1192
472.76
1991-92
224
1131
929.05
1992-93
214
1213
993.02
1993-94
229
1246
1273.00
1994-95
2080
1124
975.46
1995-96
123
1094
1204.31
1996-97
160
336
2322.20
1997-98
210
2262
2653.36
1998-99
277
2698
3491.55
1999-2000
184
1365
2350.49
2000-2001
208
1515
1863.94
2001-2002
312
2007
2445.70
Total
6469
46309
28568.71
It is seen from the above table that since 1974 the growth of small-scale units in the state is phenomenal. Number of small-scale units more than trebled during 1981-90 period.
Product wise details of small-scale units established in Goa State as on 31-3-2002 are given in the following table.
SL.
No.
Product Group
Total
1.
Food Products
1183
2.
Beverages & Tobacco products
403
3.
Jute, hemp & Mesta Textile
11
4.
Textile Products & Garments
213
5.
Wood Products & Wooden Furniture, Fixture
489
6.
Paper Products including Printing/publishing
643
7.
Leather & Leather Products
25
8.
Rubber, Plastic, Petroleum and coal products
507
9.
Chemical Products (except Petroleum and coal products)
408
10.
Non Metallic Minerals
442
11.
Basic Metal & Alloys
132
12.
Metal Products & parts (except M/c. & transport eqpt.)
947
13.
Machinery, Tools & Parts
63
14.
Electrical Machinery & Apparatus & Supplier Parts
418
15.
Transport Equipment & Parts
97
16.
Other Mfg. Industries
145
17.
Repair/Services
443
Total
6469
Industrial infrastructure
Goa Industrial Development Corporation, set up in 1965 to spur industrial growth in the state, has established twenty-two industrial estates.
Goa has over 6,500 small-scale units and about 140 large and medium scale industries employing over 50,000 people. This development has emerged simultaneously with the emergence of Goa as an important tourist locale on the world map. The state has successfully managed to achieve growth in both social and economic infrastructure.
The Eleventh Finance Commission report ranked the combined social and economic infrastructure in the state to be the best in the country.
DATA ANALYSIS
Bank Wise Position Of Sick S.s.i units in the years 2009-2010
Bank
Total Sick Units
Non-Viable
Potentially Viable
Units Under Nursing
UNITS
AMOUNT
UNITS
AMOUNT
UNITS
AMOUNT
UNITS
BOI
1
8.81
1
8.81
0
NIL
NIL
SBI
7
177
7
158
0
19
1
PNB
2
200.55
2
200.55
0
NIL
NIL
UNION BANK
2
4.08
2
4.08
0
NIL
NIL
Indus Ind
24
102.44
14
102.44
10
NIL
10
BOM
53
206.19
50
179.79
3
26.6
3
TOTAL
89
699.27
76
653.67
13
45.6
13
The Proprietors from 44 sick firms were interviewed
The following are the list of causes for sickness post analysis of all the interviews.
Shortage of working capital
Skilled labour shortage
Technological obsolescence
Shortfall in production
Downward trend in sales
Labour Unrest
Non Supply of Raw Materials.
Ill Health/Old Age of proprietors
Loss of net worth Due to cash Losses
Natural Calamities/Accidents
Diversion of Capital Funds.
Market Network Sinkage
Completion from reputed manufacturers
Import/Substitute items in the market
Product Obsolescence
High cost of capital
Financial Fraud/Managerial Fraud
Death of Proprietor
Poor Operational Planning/
Poor Quality of end product
On analyzing the tabulated interviews it was noted that a majority of respondents blame a severe deficit in infrastructure in Goa to be the top reason for sickness
While another reason stems from a heavy reliance on Single suppliers in the state.
BROAD AREA CLASSIFICATION
INTERNAL
Sl. #
Broad Area
Detailed Causes
01.
Management
Lack of proper education, training, experience and business outlook of the Sponsors/Entrepreneurs
Poor Entrepreneurial skills
Poor Management
Poor Equity base
Lack of Integrity/Division of Funds
Faulty Project Planning and Appraisal
02.
Production/ Technical
Wrong choice of technology
Improper utilization of production capacity
Imbalanced and Defective Machinery
Poor Raw-material Planning
Inadequate Quality Control
Poor labor relations
Location problem
03.
Marketing
Lack of Market Planning
Inadequate Market Survey
Poor Collections
Defective Pricing
04.
Finance
Poor Management of Financial Resources
Delay in Mobilization of Equity Funds
Faulty Costing
Adverse debt-equity combination
Lack of Proper Accounting system
05.
Personnel
Lack of Competence
Lack of Loyalty
Lack of Professionalism
EXTERNAL
Broad Area
Detailed Causes
01.
Govt. Policy & Implementation
Frequent Policy changes
Lack of Proper Implementation of Industrial Policies
Liberal Import Policies
Poor Infrastructure / Frequent Power Disruption
Lack of Co-ordination between various ministries and Govt. Departments, etc.
Over-Saturation of particular industry type / Sector due to wrong policy
Non-availability of Raw-material, etc.
02.
Bank & Financial Institutions
Non-availability/Inadequacy of Working Capital
Lack of required financial assistance.
High rate of Interest on bank loan
Lack of timely decision & support by the banks and financial institutions.
03.
Environment
Political Unrest
Labour Unrest
Market Recession
Delay in Project Implementation
Signs of Sickness
The following actions of the unit indicate that the unit is sick or going to be sick:
Continuous irregularity in cash credit accounts ;
Low capacity utilization;
Profit fluctuations, downward sales and fall in profits followed by contraction in the share market;
Failure to pay statutory liabilities;
Larger and longer outstanding in the bills accounts;
Non submission of periodical financial data /stock statement etc. in time;
financing capital expenditure out of funds provided for working capital purposes;
Rapid turnover of key personnel;
Existence of large number of law suits against a company;
Rapid expansion and too much diversification within a short time;
Any major change in the share holdings.
Suggestions
Remedies
Majority of sick units is retrievable in order to tackle the problem of sickness from the two angles the role of three agencies assumes significance: a) The government b) Financial institutions and the industry associations
a) The Role of Government: If the number of units in the country has increased some 10 times since independence and if we have diversified industrial structure with wide spread entrepreneurship the credit for this largely belongs to government.
Second area where the government can be helpful is Vis-à-vis industrial licensing. The very existence of licensing and monopoly regulation legislation implies that there is a stampede to "to get in" whenever licensing is liberalized for an industry or an economy as a whole
b) The Role of Financial Institutions: The following are the ways by which sickness can be prevented by financial institutions:
a) Continuous monitoring of unit
b) Careful project appraisal
c) Professional institutional response to unit's problems
d) Required systems at client units
e) Incentives to units to remain healthy
c) The Role Of Industry Associations : A good practical review by each industry association (GSIA,GCCI ) of installed and usable capacity in the industry , capacity utilization , growth trends , problems etc should be useful for the potential new entrants for deciding whether to enter the industry or not.
The industry can have some sort of 1st aid cell this could consist of professionals who could go to the aid of a unit that is beginning to fall with the offer of managerial and technical help also.
Curative measures
These measures include how to cure the sickness after it has crept in.
There are lots of agencies which help cure Industrial sickness.
There is Industries (Development and Regulation) Act, 1951, which provides for the takeover of a sick unit by the Government of India. Before resorting to a takeover, other alternatives like rehabilitation through the concerned state government and financial institutions or for the merger of a sick unit with a healthy unit could be explored.
Then there is the Sick Industrial Companies (special provisions) Act, 1985, which was passed by parliament and received the assent of president in January 1986. It was amended in December 1991 so as to bring government companies within the preview of the Act.
Further, there is the Industrial Reconstruction Bank of India (IRBI) which came into being on March 20th 1985 by converting the erstwhile Industrial Reconstruction Corporation of India. It provides assistance for reconstructions and rehabilitation of the sick industrial units by granting those loans and advances, underwriting shares and debentures etc.
For the sick units in the small scale sector, separate facilities are available. State Finance Corporations and commercial banks will be asked to devise a scheme for the rehabilitation of sick units in the small scale sector, and the assistance given by them for the revival of such units will be eligible for refinancing by the IRBI at the confessional rate of interest.
Learning's:
Companies in Goa are mostly plagued by sickness due to facts like heavy reliance on Single suppliers and Lack of Trained Manpower with Ineffective Corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc. for third place (Resulting in Inability to repay loans from the bank).
Retorting to an increasing number of cases of sickness, the Government needs to set up a mechanism for detection and rehabilitation of sick industries in the state of Goa and also set up programs for both management training as well as alert Banks to play an active interest in monitoring companies for telltale signs of sickness before the advent of irreparable damage.
Conclusion
Inspite of the incentives and facilities offered under Industrial Policy Resolution of 1977 and 1980 and intensive efforts to promote large number of SSI units over the years, large number of units have been confronted with a number of problems which turn them into sick or closure previously. Most of the SSI units established in Goa are confronted with the delay in supply of raw-materials, delay by bankers in sanctioning working capital, Lack of Infrastructural facilities, Inadequacy of working Capital.
BIBLIOGRAPHY
www.hinduonnet.com/businessline
www.amazines.com
http://www.goaidc.com/coreinformation.html
