B.Com Ist Year Industrial Sickness Long Short Question Answer Notes

B.Com Ist Year Industrial Sickness Long Short Question Answer Notes :- Study material Unit – wise Syllabus topic – wise Notes Questions Answers This post contains all the detailed information related to Industrial Sickness Business Environment Topic Wise chapter wise all the content Question Answer Notes Model Paper Examination Paper Sample Practice Paper PDF Download Hindi & English For Free.

Industrial Sickness

B.Com Ist Year Industrial Sickness Long Short Question Answer Notes

Q.19. Explain present position of Industrial Sic

India. Explain major factors responsible to dustrial sickness. Suggest measures to prevent it.


What is meant by Industrial Sickness ? Discuss the

(Meerut. 207 causes of Industrial Sickness in India.

Ans. The problem of sickness in industries has become very acute in India. It has adversely affected the ‘health of the industrial sector in particular and the economy in general. A developing economy like India can not afford the growing sickness in industries as it result in a colossal wastage of physical, finance and human resources.


Industrial sickness means that the unit is not able to pay interest and other liabilities and its net worth becomes negative. If there are losses year after year in a unit then there are defaults in payment of interest, instalment to creditors, payment of wayes and salaries etc. In such a case neither banks nor financial institutions extend credit beyond a limit nor suppliers supply goods on credit. This forces the company deeper and deeper in the red and it is called as sick unit. This process results in displacement of workers, loss to creditors and to public at large. Bank and financial institutions funds are lost and there is fall in production.

The Reserve Bank of India has defined industrial sicknes as follows, “An industrial unit is regarded as sick if it has incur cash losses for one year, and in the judgement of the financing ban is likely to incur cash losses for the current as well as following y and there is an imbalance in its financial structure, that is, whe current ratio is less than 1:1 and debt-equity ratio is worsening.

Sick Industrial Companies (Special Provisions) Act, considered those units as sick units.that was registered for atleast seven years

(ii) that incurred cash losses for the current and the preceding year.

(iii) whose net worth was eroded. A company which has eroded 50% or more of its peak net worth during any preceding five years was considered potential sick and was termed as ‘incipiently sick’ company.

The Act was amended in 1992 which came into force in hmiary 1994. Now any company which has been registered nive years back and has at the end of any financial year, accumulated losses equal to or exceeding its entire networth is covered under the At The Act is applicable only to limited companies. Thus, small scale sector is not covered under the Act as most of them are not limited companies.


The problem of industrial sickness has grown over the years and a large number of industrial units in the small scale sector and non-small scale sector are affected by it. The extent of industrial sickness varies by sectors and across regions. According to information compiled by Reserve Bank of India from scheduled commercial banks, as on March, 31, 2001 there were about 2.53 lakh sick units consisting of about 2.50 lakh units in small scale sector and 3,317 units in the non-small scale sector. The total bank credit blocked in sick units had increased from Rs. 23,656 crore as on March, 31, 2000 to Rs. 25,775 crore as on March, 31, 2001. By year 2013, the total number of sick units rose to 2,49,903 with outstanding bank credit of Rs. 12,800 crore.


Some of the major causes of industrial sickness in India are as follows:

(1) Labour Unrest : There are a number of units who have become sick due to attitude of labour resulting in violence, lock-out, strikes, etc, and ultimately resulting in fall in production, loss and closure of units. When labour lack motivation, no good results can be expected.

(2) Infrastructure Bottlenecks : Lack of proper infrastructure is also responsible for industrial sickness.

A large number of industrial units face power cuts from time to This cause loss of production and subsequently profits of the industrial units.

(3) Non-availability of Raw Material : Some units depend on scarce raw materials whose supply is erratic. This results in ping the production schedule causing losses to the unit. This appens in the case of units depending upon the supply of imported inputs.

(4) Project Appraisal Deficiencies: The industrial unita become sick when it has been established without a compreha. appraisal of economic, financial and technical viabilities of project.

(5) Management Problems : The most important internet cause of sickness is management problems. Faulty managerial decisions in the fields of production, marketing, finance, personnel management etc. can ruin a business. For instance. lack of inventory and materials management, inadequate attention towards maintenance management, absence of quality control system etc. are some examples of mis-management in the sphere of production. Insufficient sales promotion activities and improper pricing policies can create problems in the field of marketing.

(6) Lack of Finance : A number of units face acute finance problems right from the stage of planning and construction to the stage of implementation and beyond. Often small scale units borrow from banks and financial institutions but are unable to meet the repayment schedules. The burden of unpaid debt accumulates and they turn sick.

(7) Wrong Location : If the location of an industrial unit happens to be defective either from the point of market or the supply of inputs, the unit is likely to face difficulties.

(8) High Costs: When the cost of the manufacture are high and sales realisation is low then it cannot stand in the market. This happens when prices of inputs increase rapidly whereas the competitive forces keep down the prices of the product.

(9) Change in Government Policy: Sudden changes in the government policy relating to imports, exports, industrial licensing, taxation etc. can make viable units sick overnight. For instance, liberal import policy for a particular product can inflict serious damage on the domestic units producing similar products.

(10) Marketing Problems : The industrial unit can also become sick due to product obsolescene and market saturation, There are many products for which new products are developed and gradually old products go out of demand. The unit producing old product looses the market and gradually become sick.

an Use of Obsolete Equipments and Machines :

(11) Use obsolete equipments and machines: Use of obsolete equipments andmachines increase cost of production making them unprofitable.

(12) Slow Down in Economic Activities : Sometimes a general depression hits industrial units. When there is decline In

overall economic growth, it is beyond the control of a single unit or a single industry. Improper demand estimation for the products put the industrial unit in difficulties.


Industrial sickness can have serious consequences as would be clear from the discussion below:

(1) Bad Effect on Employment : India is a labour surplus economy where avenues of employment are very much restricted in relation to the number of people seeking employment. Accordingly, closure of an industrial unit is likely to render workers unemployed. The implications are likely to be serious if the sick industrial unit is large one employing a large number of people.

(2) Developing of Industrial Unrest : Closure of a sick industrial unit causes widespread labour unrest. Trade unions are likely to oppose retrenchment of labour of the closed unit and resort to widespread industrial strikes. This disturb the peace of industrial environment and result in industrial losses and fall in production.

(3) Wastage of Resources : If an industrial unit turns sick and is closed down, then resources invested in that unit get wasted. This problem is particularly serious for large scale sick units where substantial investments have been made in plant and machinery.

(4) Adverse Effect on Capital Investors: When a large unit tum sick, then share price of that unit will go down and the prevalence of gloomy market conditions can adversely affect the entire stock market. Such industrial climate is not conductive for industrial development.

(5) Effects on Financial Institutions : Incerease in number of sick units cause substantial losses to banks and financial institutions which had granted loans to these industries. It affects adversely the future lending programmes of banks as bank credit locked up in the sick units.

(6) Bad Effect on Inter-dependent Units : When a large industrial unit turns sick then other small units dependent on this unit also suffer adversely. It can adversely affect the entire industrial environment.

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