Causes of Industrial Sickness in India


The various external and internal causes of Internal Sickness in India have been discussed below:

(1) Internal Causes of Sickness:

(a) Certain initial thing may go wrong:

An entrepreneur may choose a wrong project; it may lack experience; its planning may be faulty or his entire calculations may be based on faulty assumptions regarding his own ability. It may be a beginner full of enthusiasm to start a new unit and things on any of the above grounds, may be wrong.

 (b) Faulty Financial Planning:

Under- capitalisation is often a very common cause and its signs become evident right from the time the unit starts functioning. In some cases, capital is adequate but a substantial part of it is misdirected into unproductive channels such as staff quarters and provision of ammonites for top executives even before production has commenced.

Another reason may be inadequate provision for various contingencies which are bound to arise in the initial stages of a project or in fact any stage of the functioning of an industrial unit. This heavy outflow of funds becomes a cause of concern right from the start.

(c) Gestation Period:

Often the gestation period becomes for too long than anticipated specially in the case of large scale industrial unit. This might be due to delay in the supply of capital goods to be imported or indigenous, defect in planning surfacing at a later stage, falling behind schedule in various phases of the completion of the project and so on.

 (d) Faulty Location:

Selection of a wrong location may create problems for an industrial unit and may lead to industrial sickness at an early stage. Thus, high technology based units are established in areas without skilled labour on supporting infrastructure facilities industries based on imported raw materials are established in regions without adequate transport and communication system.

 (e) Technology:

Technological factor also plays vital role. Adoption of inappropriate technology or obsolete technology or installation of sophisticated machinery for which spare parts are not easily available or of defective machinery may all lead to sickness of an industrial unit.

(f) Collaboration:

Unsatisfactory collaboration agreements leading to legal complications may result in industrial sickness right from the start or at any later stage.

(g) Demand Forecast:

Wrong demand forecasts sudden appearance of competing substitutes on the market, radical and sudden change in the tastes of people as production of a commodity is being taken up may all cause industrial sickness.

 (2) External Factors Causes of  Sickness:

It is quite possible that an industrial unit may fall sick far no fault of the entrepreneur and due to reasons entirely beyond his control the entrepreneur may be a practical and very careful man with adequate expertise and resources and the project may have been very carefully prepared, and yet the unit may fall sick far no fault of his. This is because various external factors influence the health of industrial unit. Following are some of the important external factors that may cause industrial sickness.

(i) In the case of India, energy crisis, coal shortages and steeply rising petroleum prices have caused sickness among many industrial units. Energy shortages have become endemic and often anywhere from 25 to 50 per cent of electricity requirements are not met, with extremely adverse effect on production and revenue of industrial establishments, forcing many of them to fall sick.

(ii) In a number of cases the installed capacity of an industrial unit cannot be used to the maximum possible extent but only partly because of shortages of essential raw materials due to production setbacks in supply industries; or due to failure of monsoon, agricultural production and incomes have received a setback with adverse effect on demand from the agricultural sector for products like diesel pumps fertilizers, etc., and industrial units producing these goods continually for two or three years may find themselves in a condition of sickness, or import policies of some countries may change so that demand for certain goods produced for export purposes declines steeply. If this persists for some years, it would mean a great setback to the concerned industrial units making them sick as a consequence.

(iii) Infrastructural problems (such as heavy demand for railway services) may cause immense problems for industrial units in getting necessary raw materials in time and in sending out manufactured goods to different markets in the country and also abroad according to schedule. This would upset the smooth working of the industrial unit.

(iv) Non-availability of adequate credit due to depressed conditions in capital and money markets of credit squeeze policy of the government may upset the working of an industrial unit making it sick. The policy of credit squeeze followed by the Government of India for some time during 1970s was responsible for sickness of many industrial units, ultimately forcing some of them to close down.

(v) Unfavourable government policies such as in respect of taxation, export imports, controls, rate of interest, foreign competition etc. may produce unfavourable environment for working of some industrial units, some of which for failure to successfully cope with all these constraints may fall sick or may close down completely.

Monday, 04th Apr 2016, 12:28:46 AM

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