A STUDY ON IMPORTANCE OF SICKNESS OF SMALL

INDUSTRY IN AN ORGANISATION OF VIVO INDIA

Submitted by

MOHAMMED HANEEF N

MZC22MBA31

Under the guidance of

MAHIMA S KRISHNA

ASSISTANT

PROFESSOR

DEPARTMENT OF MANAGEMENT
STUDIES

In partial fulfilment for the award of the

degree of

MASTER OF BUSINESS ADMINISTRATION

Of APJ Abdul kalam technological University

DEPARTMENT OF MANAGEMENT STUDIES, MOUNT ZION

COLLEGE OF ENGINEERING, KADAMMANITTA,

PATHANAMTHITTA
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SEPTEMBER 2023

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 ABSTRACT

Industrial sickness is a term applied to various things associated with industry

that make people ill and cause them to miss work. The solutions will have to be
tailored to the specific industry, and only in that way can any real effect be made on
improving the health and productivity of the industrial workforce.The key is an
aggressive work-up on the health issues for a given segment of the industrial
workforce, and usually broken down by type of work (which makes sense). Even as
coal miners face overpowering respiratory threats, and foundry and mill workers have
to confront major physical threats from large (heavy) quantities of extremely hot
materials, each facet of industrial production has its hot-button health issues.Industrial
health managers need training and experience identifying and remediating conditions
that present major health threats to their respective workforce. Then they can train the
rest of management and can teach the workers themselves about the best way to carry
out their jobs with minimum threats to their health.Industrial sickness can be defined
as a steady imbalance in the debt-equity ratio and distortion in the financial position
of the unit. A sick unit is one which is unable to support itself through the operation of
internal resources.
Once the sick units continue to operate below the break-even point (at which total
revenue = total cost), industries are forced to depend on the external sources for funds
of their long-term survival.According to the criteria accepted by the Reserve Bank of
India, “a sick unit is one which has reported cash loss for the year of its operation and
in the judgment of the financing bank is likely to incur cash loss for the current year
as also in the following year.”The small Scale Industrial sector is one of the most vital
sectors of the Indian economy in terms of employment generation, the strong
entrepreneurial base it helps to create and its share in production. In the developed
countries of the world, prevalence of sickness in Small Scale industrial sectors is
occur because of Lack of demand, shortage of working capital, undeveloped
technological and managerial skills and has not been lifting experience. The
phenomenon of industrial sickness also effects of unemployment, non availability of
goods and services and prices high up. The shareholders also lose their hard-earned
savings, creditors lose their cash and low growth in future prospects of business. In
India, The rapid growth and magnitude to industrial sickness is a serious issue not
only for present time but also for all time to come during the next century. The crores

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of rupees blocked up in several of sick unit but it also affected the national growth of
countries. The growing industrial sickness in the country is causing great concern to
the government and financial institutions because it is sucking the blood of the
industry gradually and sapping economic vitality and thereby baffling all the useful
programme of economic development. In fact industrial sickness pervades all around
and is posing a very serious problem to different sectors of the economy. It is
generally found that a healthy unit may become temporarily or permanently sick and
may recover its healthy stage. The internal factors may affect the particular unit only
and this factors mostly affects are within control of management. The external factors
usually affect all the units of the same line industrial group simultaneously. These
external factors are may be beyond the control of the management. Everything you
need to know about the causes of industrial sickness. Industrial sickness does not
result in one day. It sets in and gradually weakens the unit over a period of
time.Various symptoms which signify the setting in of the industrial sickness are-
slowdown in production and sales cycle, frequent shortages of funds and too often
resorting to outside sources of funds, difficulty in honoring and paying the bills, loans,
taxes, wages, salaries etc excessive stock accumulation, problems in replenishing raw
material inventory and so on. Industrial Sickness is a term used to describe an
industrial unit's poor health or financial condition, which makes it unable to operate
effectively or sustainably. It is characterized by the inability of the unit to generate
enough revenue to cover its expenses, leading to a decline in productivity, loss of jobs,
and potential closure of the unit. A consistent mismatch in the debt-to-equity ratio and
distortion in the unit's financial status are symptoms of industrial sickness. A sick unit
is unable to function properly with its internal resources. Industries are forced to rely
on external funding sources after the sick units function below the break-even point
(at which total revenue equals total cost).

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 LIST OF CONTENTS

SL TOPIC Page No
No
1 INTRODUCTION 1
2 THEORETICAL FRAMEWORK 3
3 COMPANY PROFILE 17

4 CONCUSION 19
5 REFERENCE 21

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 INTRODUCTION

"Industrial sickness" refers to industrial weakness when the business fails to

profit reasonably. It is the persistent debt-to-equity ratio imbalance and the inaccurate
representation of the financial situation of the industrial unit. Industrial Sickness is a
stage where a company cannot consistently generate a surplus and must rely on
outside financing to survive in the market. A unit cannot support itself while it is ill
through normal functions.Sickness in man is gradual process and does not develop
suddenly. Similar is the case with industrial units. Therefore, in common parlance, a
sick industry is one which is not healthy and a healthy unit is one which earns a
reasonable return on capital employed and builds up reserves after providing
reasonable depreciation.A sick industrial unit may be defined as one where it fails to
generate surplus on a continuous basis and depends upon frequent infusion of external
funds for its survival.
According Reserve Bank of India (RBI), a small-scale unit should be
considered as sick if it has at the end of any accounting year, accumulated losses
equal to or exceeding 50% of its peak net worth in the immediately preceding 5
accounting years”. The Sick Industrial Companies Act 1985 identifies sickness in
terms of cash losses for two consecutive financial years and accumulated losses
equaling or exceeding the net worth of the company at the end of the second financial
year. Sickness, in industry therefore, indicates more or less a perfect positive
correlation with profitability, liquidity and solvency. The reasons of industrial
sickness can be either internal or external. The various internal causes are inadequate
technical know-how, location disadvantages, outdated production process, high cost
of inputs, uneconomic size of project, unduly large investment in fixed assets,
inadequate mobilization of finance, poor quality control, poor capacity utilization,
high cost of production, high wastage, excessively high wage structure, weak market
organization, faulty costing, lack of professionalism, control and diversification etc.
The various external causes of sickness are non availability of critical raw materials,
chronic power shortage, transport bottlenecks, non-availability of adequate finance,
government control on prices, fiscal duties, market saturation, natural calamities, and
multiplicity of labour unions etc. The strength of the industrial sector, by and large,
determines the soundness of the economy.

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 A developing economy like India cannot afford the growing sickness in
industries as it results in a colossal wastage of physical, financial and human
resources. In the presence of the resource crunch, the industrial sickness becomes all
the more an alarming problem. Industrial sickness usually refers to a situation when
an industrial firm performs poorly, incurs losses for several years and often defaults in
its debt repayment obligations. The Reserve Bank of India has defined a sick unit as
one “which has incurred a cash loss for one year and is likely to continue incurring
losses for the current year as well as in the following year and the unit has an
imbalance in its financial structure, such as, current ratio is less than 1: 1 and there is
worsening trend in debt-equity ratio.” The State Bank of India has defined a sick unit
as one “which fails to generate an internal surplus on a continuous basis and depends
for its survival upon frequent infusion of funds.” A small scale enterprise, or more
simply, a small business, is one marked by a limited number of employees and a
limited flow of finances and materials. Clearly, Google, General Motors and Wal-
Mart are not companies that anyone would mistakenly label a small enterprise. Small
Scale Industries (SSI) are industries that manufacture, produce and render services on
a small or micro scale level. In India, several SSIs exists in various fields such as
handicrafts, toys, weaving, pickle making, food products, etc. Essentially the small
scale industries are generally comprised of those industries which manufacture,
produce and render services with the help of small machines and less manpower.
These enterprises must fall under the guidelines, set by the Government of India.
The SSI’s are the lifeline of the economy, especially in developing countries
like India. These industries are generally labour-intensive, and hence they play an
important role in the creation of employment. SSI’s are a crucial sector of the
economy both from a financial and social point of view, as they help with the per
capital income and resource utilization in the economy.

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 THEORETICAL FRAMEWORK

Problem of industrial sickness is not specific to any industry or country. The approach
to sickness is to restore a unit to normalcy through restructuring devices within a short
period of time or else close it down. Such easy and straight forward options are not
available to labour abundant economies like India which can ill afford large scale
unemployment either of labour or of valuable productive assets caused by sickness.
Competition breeds efficiency but adversely affects weak industrial units and makes
them sick. The clear directional changes since 1982-83 towards liberalization of
industrial licensing policies, foreign collaboration approvals, the concept of
minimum-size plants are welcome from consumers’ point of view. But the weaker
units have to pay the price. The inevitable cost of achieving competitive efficiency is
that the weak must be allowed to fade. But the country cannot allow this to happen.
The Sick Industrial Companies (Special Provisions) Act, 1985, was enacted to help
and revive the sick units. The substantive portions of the Act came into force from
May 15, 1987. The Act provided for setting up of a quasi-judicial body designated as
the Board for Industrial and Financial Reconstruction (BIFR) to deal effectively with
the problem of sick industrial companies. The Reserve Bank of India has issued
guidelines to banks to strengthen the monitoring system and to arrest industrial
sickness at the incipient stage. Further, sizeable funds of banks and financial
institutions and blocked up in sick units which impair the banks profitably and their
ability to recycle fund in other productive areas. This has an adverse effect on the
economy of country like India. Thus, industrial sickness is a result of faulty
management policies as well as fiscal problems. Under such circumstances, fiscal
reforms programme with a determined management and relevant management
policies for revival of sick industries are need of the hour.
`“Industrial development is identified as the effective means to the economic
growth in any country. Industrial sickness has become a common feature of the large
scale sector as well as small scale sector. In spite of the enactment of special
legislation and various steps taken by the government and RBI to deal with the
problem, industrial sickness is growing. The liberalization of the economy resulting
into increased competition has added to the problem of industrial sickness.” “Closures
of business units and corporate failures resulting in bankruptcies have become a
normal feature in market economies the world over”. Growing competition and
the
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ever-changing international economic environment often lead to high incidence of
corporate failures in developed market economies. However, these economies have
the resilience to absorb the economic disturbances brought about by the closure of
industrial units. In order to combat the problem of industrial sickness, a
comprehensive assessment of the magnitude of industrial sickness and an analysis of
the main factors which bring about sickness are necessary. Both prevention and
cure of industrial sickness would depend on our ability to identify sickness as early as
possible and analyze its causes. Faulty or delayed identification would reduce the
effectiveness of the remedial action such as restoring the financial viability of sick
units and protecting units which would become sick.The problem of industrial
sickness is nothing peculiar to our economy or any developing coun-try. It is also
present in the advanced countries, hut there it is considered prudent to shut down the
units if they are sick. But in developing countries, like India, one cannot afford to do
so as it will lead to substantial block of national capital to go waste and create
unemployment of those already employed, when additional employment is a crying
need of the hour. Even ‘not so fit’ or ‘unfit’ industries may have to be rendered a
helping hand to raise and stand on their own, to avoid wastage or total loss of funds
and other resources already invested therein. In general a sick unit can be defined as a
unit that fails to generate surplus on a continuous basis and frequently depend on
external funds for its survival.

Industrial Sickness – Definitions

According to the Reserve Bank of India (RBI) a small scale unit is considered
as a sick unit if it has “incurred cash loss in the previous accounting year and is likely
to continue to incur cash loss in the current accounting year and has on erosion on
account of cumulative cash losses to the extent of 50 percent of those of its net worth”.

According to ICICI, a sick industry is one whose financial viability is

threatened by adverse factors present and continuing. The adverse factor might relate
to management, market fiscal burden, labour relations or any other. When the impact
of factors reaches a point where a company begins to, incurred cash losses leading to
erosion of its funds, there is threat to its financial stability.

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 The sick industrial companies (special provision) act 1985, defined sickness in
terms of “cash losses for two consecutive financial years and accumulated loses
equaling or exceeding the net worth of the company at the end of the second financial
year”.

The definition of sick small scale industry has been modified as, “A small
scale, industrial unit should be considered as sick if it has, at the end of any
accounting year, accumulated losses equal to or exceeding 50 percent of its peak – net
Worth in „the immediately preceding five accounting years”

Industrial Sickness – Concept

The recent RBI guidelines facilitate the detection of sickness at the incipient
stage but only for large and medium units. An industrial unit will be termed as
“weak,” if at the end of any accounting year it has:
(i) Accumulated losses equal to or exceeding 50 per cent of its peak net worth in the
immediately preceding five accounting years,
(ii) A current ratio of less than 1:1,
(iii) Suffered a cash loss in the immediately preceding accounting year.
Incipient Sickness:
If the downfall in the smooth functioning of various operational areas of the unit
continues unabated. The actual process of sickness then starts. Such a stage is
considered to be incipient sickness and is identified by reference to the following
symptoms:
(1) There are continuous such losses from year to year and the trend is expected to
continue in future.
(2) Deterioration is expected in the current ratio in the current financial year, even
though the same may have been more than one in the previous financial year.
(3) There is gradual erosion in the net worth during the previous and current financial
year and is expected to continue in future also.
(4) Deterioration continues in the debt-equity position in the current financial year and
subsequently also.

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 In a nutshell, it may be seen that incipient industrial sickness is that stage
where the unit incurs cash losses; however the position of financial structure may not
be very much alarming. This is the time to take certain corrective measures to prevent
the unit from turning into sickness. This will, however, require proper identification,
care and follow-up programme. According to Section 3(0) of the Sick Industrial
Companies (Special Provisions) Act, 1985, a sick industrial company is an industrial
company (being a company registered for not less than 5 years) which has at the end
of any financial year accumulated losses equal to or exceeding its entire net worth.
The condition of 7 years have reduced to 5 years and the condition regarding cash
losses has been omitted by the 1993 Amendment.

With regard to potentially sick industrial companies the SICA has provisions
for identifying impending sickness as of 50% or more of the net worth. If the
accumulated losses of an industrial company in any financial year have resulted in
erosion of 50% or more of its net worth during the immediately preceding 4 years (5
years reduced to 4 years by the 1993 Amendment), it is considered as potentially sick
and in such cases the company shall within a period of 60 days from the date of
finalization of the duly audited accounts of the company for the relevant financial
year report to this effect to the Board and held a general meeting of the shareholders
of the company for bringing the fact to their notice.

Characteristics of SSI

 Ownership
SSI’s generally are under single ownership. So it can either be a sole proprietorship or
sometimes a partnership.
 Management
Generally, both the management and the control is with the owner/owners. Hence the
owner is actively involved in the day-to-day activities of the business.
 Labor Intensive
SSI’s dependence on technology is pretty limited. Hence they tend to use labour and
manpower for their production activities.
 Flexibility

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SSI’s are more adaptable to their changing business environment. So in case of
amendments or unexpected developments, they are flexible enough to adapt and carry
on, unlike large industries.
 Limited Reach
Small scale industries have a restricted zone of operations. Hence, they can meet their
local and regional demand.
 Resources Utilization
They use local and readily available resources which helps the economy fully utilise
natural resources with minimum wastage.

Nature of Sickness

The FICCI study entitled ‘Industrial Sickness — Dimensions and Perspectives’ says
that the causes of sickness are both internal and external, often operating in
combination. External factors are government policies on pricing, duties, taxes, high
interest rates, taxes on profit, slackness in demand, sluggishness in export markets,
high labour cost, inadequate availability of inputs, lack of infrastructure and the like.
The internal factors which contribute to sickness are wrong planning in relation to
location, technology, capital cost, technological obsolescence, management
deficiencies and industrial unrest. We explain below these external and internal
factors in some detail.
 External Factors:
The following are some of the external factors causing industrial sickness in
(i) General Recessionary Trend:
Sometimes a general depression hits industrial units. This is reflected in lack of
demand for industrial products in general. An overall slowdown in economic
activities affects the performance of individual projects. Improper demand estimation
for the products to project lands the industrial units in difficulties.
(ii) High Prices of Inputs:
When the costs of manufacture are high and sales realization low, the industrial unit
cannot stand in the market. This happens when the prices of inputs such as price of
fuel such as petroleum during energy crisis goes up whereas the competitive forces
keep down the prices of the products.

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(iii) Non-Availability of Raw Materials:
When the supplies of raw materials are not available regularly or in good quality, the
industrial units are bound to be in trouble. This often occurs in case of supply of
imported raw materials.
(iv) Changes in Government Policies:
The industrial sickness is also caused by certain changes in policy designs of the
government. These frequent changes affect the long-term production, financial and
marketing planning of an industrial unit. Changes in Government policies regarding
imports, industrial licensing, taxation can make viable units sick. For example, liberal
import policy since 1991 has rendered many small-scale industrial units sick.
(v) Infrastructure Bottlenecks:
Often the infrastructure difficulty is responsible for industrial sickness. No industrial
unit can survive prolonged transport and power bottlenecks.
 Internal Factors
The following are the important internal factors which are often responsible for
industrial sickness:
(i) Project Appraisal Deficiencies:
The industrial unit becomes sick when the unit has been launched without a
comprehensive appraisal of economic, financial and technical liabilities of the project.
(ii) Industrial Unrest and Lack of Employee Motivation:
When there is labour discontent, no industrial unit can function smoothly and
efficiently. When labour lacks motivation no good results can be expected and this
results in sickness and non-viability of several industrial units.
(iii) Wrong Choice of Technology:
If the promoters use wrong technology, results are bound to be unsatisfactory. Many
industrial units, especially in the small-scale sector, do not seek professional guidance
in installing the correct machinery and plant. If the machinery and plant installed turn
out to be defective and unsuitable, they are bound to suffer losses and become sick
and non-viable.
(iv) Marketing Problems:
The industrial unit becomes sick due to product obsolescence and market saturation.
The industrial unit becomes sick when its product-mix is not attuned to the consumers’
demand.

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(v) Wrong Location:
If the location of an industrial unit happens to be defective either from the point of the
market or the supply of inputs, it is bound to experience insurmountable difficulties.
(vi) Lack of Finance:
Inadequate financial arrangements or in the absence of timely financial aid an
industrial unit is bound to come to grief. It will not be able to withstand operational
losses.
(vii) Improper Capital Structure:
If capital structure proves to be unsound or unsuitable especially on account of
delayed construction or operation, it will result in cost overruns or unduly large
borrowing and create financial trouble for the unit concerned.
(viii) Management Deficiencies:
The biggest cause of industrial sickness is the managerial inefficiency. Lack of
professional management or experienced management and the existence of hereditary
management is an important cause of industrial sickness. Inefficient management
results in inability to perceive things in proper perspective devoid of routine
considerations. Inefficient management is also unable to build up good team and
inspire confidence for an organized collective effort and takes autocratic and high-
handed decisions.
(ix) Voluntary Sickness:
There is some sickness which is voluntarily invited by the entrepreneurs for various
motives like getting government concession or aid from financial institutions. Thus
industrial sickness cannot be attributed to any single, or simple cause but may be the
result of a combination of number of allied causes.

Suggestions for Rehabilitation of Sick Units:

The rehabilitation of sick units or restoring them to normal health is a matter

of great urgency in view of the serious social, economic and political consequences of
industrial illness.
The following measures may be suggested:
(i) Cooperation between Term-Lending Institutions and Commercial Banks:

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Since commercial banks provide working capital, they are in a position to know about
the working of industrial concern. But assistance from term-lending institutions is also
essential for rescue operations.
(ii) Coordination between Various Government Agencies:
All government agencies, both regulatory and promotional, must join hands to restore
sick units to health.
(iii) Full cooperation from various suppliers,’ unsecured creditors and other
stakeholders, particularly from the employees, is also essential to take the concern out
of the difficulties in which it is involved.
(iv) Willing Cooperation and Clear Understanding with the Project Promoters:
Generally there is a lack of trust and confidence among the various interests
concerned. It is found that government agencies and dealing institutions are more
worried about their money and are anxious to recover them instead of curing of the
health of the sick units.
(v) Checking Over-Valuation of Inventories:
The banks should verify on a regular basis the valuation of inventories both in terms
of quantity and price. This would prevent over-borrowing on the hypothetical of
inventories.
(vi) Marketing:
There should be well organized and scientific marketing by the project promoters
otherwise launching of a project will be a leap in the dark. Good marketing
arrangements will prevent industrial sickness.
(vii) Recovery of Outstanding:
Every effort should be made to realize outstanding advances so that the concern is
able to gather funds to avoid sickness.
(viii) Modernization of Machinery:
If the sick unit is to be restored to health, old and obsolete machinery and outdated
technology should be discarded at the earliest.
(ix) Improving Labour Relations:
Restrictive labour and unreasonable trade unions are great obstacles. Improving
labour relations will go a long way in curing industrial sickness.
(x) Efficient Management:If necessary inefficient management should be replaced.
The key to industrial health lies in alert and efficient management. The management

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should show a calm approach, patience and perseverance, courage and ability to steer
in bad weather.
(xi) Performance Incentives:
It is necessary to offer performance incentives to the executives and the workers to
induce them to put in their best efforts. This will be quite helpful in curing industrial
sickness.
(xii) Sympathetic Government Attitude:
During periods of industrial illness the government agencies should adopt a
sympathetic and understanding attitude so that the problem is not aggravated but
moves towards a solution instead.
(xiii) Austerity and Economy:
Austerity and disciplines should be enforced at all levels. Every effort should be made
in raising funds internally through the sale of excess assets, surplus machinery, etc.
Uncalled for tours, lavish entertainments, unnecessary personal expenses should be
ruthlessly cut down.
Stages of Sickness

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Healthy Unit:
A healthy unit is one where all the systems and sub-systems, and all the functional
areas like finance, production, marketing and personnel, are performing efficiently.
That is, when a unit is earning sufficient profit, when its current ratio is more than one,
when its tangible net worth is positive, and when its debt-equity ratio is reasonable, it
may be termed as healthy. Further, a healthy unit must also be capable of withstanding
the ever-changing external environment, as the antibodies in a healthy human being
fight the viral or bacterial infections.
Tending towards Sickness:
When certain aberrations start taking place in any of the functional areas of a unit, due
to some internal problems or external (environmental) constraints, it may be said to be
tending towards sickness. The indicators at this stage may be decline in the profit last
year as compared to the previous year and the estimated losses in the current year.
At this stage, both the banker and the borrower would do well to carefully
diagnose and analyze the various causes of the initial ailments and take the necessary
preventive measures so that the unit may be saved from deteriorating further and
falling sick.
Incipient Sickness:
If the initial aberrations are not arrested in time, the position may deteriorate and the
actual sickness may set in.This stage may be termed as the incipient sickness stage of
the unit, which may be determined by the following factors:
i. The unit had incurred a cash loss during the last year and was expected to incur a
cash loss even in the current year,
ii. Though the current ratio of the unit was more than one at the end of its last
financial year, it was expected to deteriorate to less than one during the current
financial year,
iii. The tangible net worth (TNW) of the unit was expected to contract during the
current financial year.
iv. The debt-equity ratio of the unit was expected to deteriorate during the current
financial year. The bank officers may be able to detect the incipient sickness in a
unit in time through an effective system of supervision and follow-up of the advances.
After having done so, they should promptly review the overall position of the unit,
identify the area of deficiency, and initiate the necessary corrective steps, in full

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cooperation with the entrepreneurs, with a view to preventing the unit from falling
sick.
If the necessary corrective measures are not taken promptly at the incipient
stage or are inadequate, the causal factors may continue to adversely affect the
functional areas, gradually worsening the overall position of the unit, which may
ultimately fall sick.At this stage, the bank officers are expected to urgently undertake
the detailed viability study of the sick unit. If the unit is considered viable, they
should promptly formulate and implement a comprehensive rehabilitation programme
with the close cooperation of the entrepreneurs, with a view to nursing the unit back
to health. Timely action is of essence in such matters because delay may turn even a
viable unit into a terminally sick unit. If the unit is, however, found to be non-viable
for rehabilitation by the bank, the advance should be called up without delay so as to
contain the losses of the bank and the borrowers.

Industrial Sickness – Signals of Industrial Sickness

The sign of sickness may be discernible at quite an early stage. This warning
sign is termed as “Signal”. In fact, the timely identification of various signals makes
the detection of sickness easier. Therefore, the various signals as listed below need to
be identified and monitored at an early stage.
The important signals of sickness are:
1. Decline in capacity utilization
2. Irregularity in maintaining bank account
3. Non-submission of the data to bank financial institutions
4. Inventories in excessive quantities
5. Frequent break down in plant/equipment
6. Decline in technical deficiency
7. Decline in the quality of the products/services
8. Shortage of liquid funds for short-term financial obligations
9. Default in the payment of statutory dues
10. Frequent turnover of personnel in the industries.

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Industrial Sickness – Symptoms of Sickness

The persistence of many signals for a long period of time is termed as symptoms of
sickness, the various symptoms ultimately reflect on the plant performance (capacity
utilization, financial capital ratio, share market value practices in the diverse areas of
finance, production, marketing and labour relation in the industry).
Some of the important symptoms are:
1. Deteriorating financial ratio
2. Delay in the audit of annual account
3. Persisting shortage of cash flow
4. Continuous tumble in the price of the shares
5. Delay in the payment of statutory dues
6. Widespread use of creative accounting
7. Frequent request for loans
8. Morale degradation of the employees
9. Desperation among the top and middle managerial level.
However, the financial ratios, in each case cannot be considered as true symptoms of
industrial sickness

Some of the common causes leading to failing health of small units are
discussed as follows:
1. Problems in Production:
Problems in production may arise due to:
i. Machine breakdowns, poor maintenance
ii. Poor quality of raw materials
iii. Poor labour productivity
iv. Power shortage
v. Lack of production, planning, and control
vi. Delayed supplies from sub-contractors
vii. Poor industrial relations.
2. Lack of Orders:
A unit may suffer as it does not get enough orders to match its anticipated or targeted
production targets.The lack of orders could be due to any of the following reasons:

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i. Competition
ii. Recession
iii. Low quality technical incompetence
iv. Irregular deliveries
v. Poor marketing efforts
vi. Obsolescence
3. Lack of Raw Materials:
Diminished or poor supply of raw materials could be due to:
i. National or regional shortage
ii. High cost
iii. Overdue payments to suppliers
iv. Poor quality
v. Uncertain suppliers
vi. Lack of planning.

Industrial sickness is considered a normal phenomenon in the process of

industrial development, if it is isolated and sporadic. But in India, the scale and spread
of industrial sickness is such that it has become a serious problem in the economy. It
is blocking not only huge scare resources but also affecting a large section of
population, therefore, creating social besides economic repercussions. Serious efforts
are required so that it remains at reasonable level, if it all incidence is high, sickness
be identified at incipient stage and sincere efforts be made by financial institutions in
the process of revival and rehabilitation, and enviable units be settled quickly so to
spare resources for better alternative uses. Like other economic problems, industrial
sickness in Indian economy needs treatment based on sound diagnosis that takes all
the relevant parameters and interests into account.

Incidence of Industrial Sickness:

A very disquieting feature of the industrial scenario is the mounting incidence

of industrial sickness. It is a matter of deep concern not only for shareholders and
creditors of the sick concerns but also to the society at large. There is sickness of
industries both in the large-scale sector (i. e., Non- SSI sector) and in the small-scale

15
industries (SSI). Growing incidence of sickness has been one of the pressing problems
faced by the industrial sector in India. Substantial amounts of banking funds are
locked up in these sick industrial units.

Industrial Sickness: Special Provisions Act, 1985 for UPSC

The Sick Industrial Companies Act of 1985 (SICA) was a crucial piece of legislation
dealing with India’s epidemic of industrial disease.
The Sick Industrial Enterprises Act of 1985 (SICA) was implemented in India to
discover enviable (“sick”) companies that might cause systemic financial risk.
SICA was abolished and replaced in 2003 by the Sick Industrial Companies (Special
Provisions) Repeal Act, which softened some features of the original Act and
addressed some issues.
SICA was later completely repealed in 2016, partly because some of its provisions
clashed with those of another Act, the Companies Act of 2013.

Remedial measures

Government Role: The government must actively protect sick units, particularly those
in small-scale sectors that are struggling to compete in the age of globalization.
Financial institutions’ Role: Financial institutions can help prevent illness in the
following ways:
 Continuous monitoring of unit
 Careful project appraisal
 Professional, institutional response to unit’s problems
 Required systems at client units
 Incentives to units to remain healthy
 Role of Industry Associations: A good practical review by each industry
association of installed and usable capacity in the industry, capacity utilization,
growth trends, problems, etc., should be useful for the potential new entrants in
deciding whether to enter the industry or not.

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 COMPANY PROFILE

VIVO INDIA PVT LTD

Vivo India Electronics Private Limited is a Non-govt company, incorporated on 03 Aug, 1995.
It's a private unlisted company and is classified as'company limited by shares'.

Company's authorized capital stands at Rs 24400.0 lakhs and has 88.847534% paid-up capital
which is Rs 21678.8 lakhs. Vivo India Electronics Private Limited last annual general meet
(AGM) happened on 26 Sep, 2017. The company last updated its financials on 31 Mar, 2017 as
per Ministry of Corporate Affairs (MCA).

Vivo India Electronics Private Limited is majorly in Manufacturing (Machinery & Equipments)
business from last 28 years and currently, company operations are active. Current board members
& directors are ZHIYONG CHEN AND HARINDER DAHIYA

Vivo India Electronics Private Limited registered address is 10TH&11TH FLOOR, PALM
SPRINGS PLAZA(COMPLEX)VILLAGE WAZIRABAD,SECTOR-54 GURUGRAM
GURGAN HR IN 122003

17
CONCLUSION

In view of the large-scale industrial sickness it would be necessary to organize a task

force consisting of competent and experienced executives in various branches of
business to go into the case and monitor recovery. Rehabilitation of sick units is not
an easy and simple affair. An all-round effort is necessary to root out the disease, first
necessary step is the identification of sick units which can be made viable through
renovation, expansion, and diversification. Units beyond recovery should be wound
up.A sick industrial unit may be defined as one where it fails to generate surplus on a
continuous basis and depends upon frequent infusion of external funds for its survival.
According Reserve Bank of India (RBI), a small-scale unit should be considered as
sick if it has at the end of any accounting year, accumulated losses equal to or
exceeding 50% of its peak net worth in the immediately preceding 5 accounting
years. The Sick Industrial Companies Act 1985 identifies sickness in terms of cash
losses for two consecutive financial years and accumulated losses equaling or
exceeding the net worth of the company at the end of the second financial year.
Sickness, in industry therefore, indicates more or less a perfect positive
correlation with profitability, liquidity and solvency. Sickness, in industry therefore,
indicates more or less a perfect positive correlation with profitability, liquidity and
solvency. The reasons of industrial sickness can be either internal or external.
The various internal causes are inadequate technical know-how, location
disadvantages, outdated production process, high cost of inputs, uneconomic size of
project, unduly large investment in fixed assets, inadequate mobilization of finance,
poor quality control, poor capacity utilization, high cost of production, high wastage,
excessively high wage structure, weak market organization, faulty costing, lack of
professionalism, control and diversification etc.The various external causes of
sickness are non-availability of critical raw materials, chronic power shortage,
transport bottlenecks, non-availability of adequate finance, government control on
prices, fiscal duties, market saturation, natural calamities, and multiplicity of labour
unions etc. Industrial sickness is considered a normal phenomenon in the process of
industrial development, if it is isolated and sporadic. But in India, the scale and spread
of industrial sickness is such that it has become a serious problem in the economy. It
is blocking not only huge scare resources but also affecting a large section of
population, therefore, creating social besides economic repercussions.

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 Serious efforts are required so that it remains at reasonable level, if it all
incidence is high, sickness be identified at incipient stage and sincere efforts be made
by financial institutions in the process of revival and rehabilitation, and enviable units
be settled quickly so to spare resources for better alternative uses. Like other
economic problems, industrial sickness in Indian economy needs treatment based on
sound diagnosis that takes all the relevant parameters and interests into account.
Problems of sickness are omnipresent but the dimensions differ. The approach in
developed economies is to restore a unit to normalcy by way of restructuring methods
within a short span of time or else close it down once for all. Such methods may not
be suitable to our country on account of prevalent wide spread unemployment
scenario. The Economic Survey (1989-90) mentioned about the prevalent of sickness
in the country. The survey mentioned ‘growing incidence of sickness has been one of
the persisting problems faced by the industrial sector of the country. Apart from that,
sizeable funds of banks and financial institutions are blocked up, which impair the
banks profitability and their ability to recycle fund for productive areas. This has also
affects the healthy growth of the industrial economy. There are various criteria
adopted by different authorities for identifying a sick small- scale industry.

19
REFERENCES

Ajay K. Gupta and Sadhu Handa, ‘A Study of the Non-Conventional Sources

of Entrepreneurial Finances’ Southern Economist, October 15, 2004.
Antony Valasamma (2002), “The Prospects and Growth of SSIs in India: An
Overview”, Southern Economist.
Parbat, Kalyan; Sengupta, Devina (31 August 2018). "NCLT gives go-ahead
to Idea-Vodafone merger". The Economic Times. Retrieved

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