Industrial Sickness in India

Background

The issues of business closure, liquidation and bankruptcies has become normal aspects of competitive market economies all over the world. The competition is intense within all industries and marketing environment is changing rapidly and abruptly, which has led to increasing incidences of corporate failure at global level. It has been found by Taylor & Bain (2005) that although resilience is witnessed in current competitive market economies, to absorb the effect of economic disturbance brought the corporate failures. Yet, the notion of industrial sickness has grabbed the attention of both researchers as well as practitioners to recognize the adverse consequences of this phenomenon on long run health of market economies. The sickness is considered as a phenomenon, whereby financial position of specific business unit is deteriorated year by year and it experiences losses in its business operations. The effect of sickness is not confined to single business unit and it prevails to whole industry, as well as to different related units and industry sectors (Ojha, 2018). Although, notion of business unit or industrial sickness is relevant to all small as well as large businesses, yet it is found to be more relevant to small scale businesses, which have limited amount of finance available to run its operations (Pal, 2019). The limited access to resources, limited scope of business operations and focus on relatively narrow segment of market; are same main aspects which restrict the ability of small businesses to cope with the market challenges, thus leading to their sickness, which might cause death of these businesses in worse case (Tabassum & Fasi, 2017). 

The problem of sickness in Indian industry has widely been witnessed over the years and the issue has found to be extending in seriousness over time. For instance, it was found that in 1976, there were about 300 small and medium sized business units which were closed based on the issue of sickness or were at the verge of getting closed (Roy & Basu, 2015). The situation has continued to persist for the next decades, as the economic survey of 1989-1990 has mentioned that among the issues experiences by Indian industry, the problem of sickness is the most prevalent as well as persisting (Reddy & Reddy, 2020). The data of Reserve Bank of India has shown that during 1989-1990, the sickness was prevailing in small scale sector to the extent that every seventh unit was found to be sick. The background information also shows that mainly the sick industrial business units are Jute, engineering and textile industry (Singh, 2011). Likewise, the cotton, sugar and small steel industries have also witnessed the issue of sickness over time. It is addressable that Government of India has made substantial effort to help revive the sick industrial units, based on provision of Sick Industrial Companies Act of 1985, which has officially came into force since 1987 (Shetty & Shetty,  2020; Mehta & Harode, 1998). The efforts were made to arrest the sick industrial units at their initiation stages, such that any early treatment might encourage early recovery of the business units. 

Followed by the implication of Sick Industrial Companies Act, there were still evidences of sickness in different industrial units. For instance, the research has indicated that by the end of 2003 there were around 1.71 lakhs of sick business units, of which about 1.67 lakhs business units were small scale units. It indicates that 98% of total sick units were from small scale businesses (Reddy & Reddy, 2020).  The number of sick units has increased gradually over the years, such that there were 271,206 sick business units in 1995 and 307,399 sick business units in 2000. However, the number declined in the next five years period, such that in 2005, there were 143,293 units (Navulla, Guniganti & Boda, 2016).  In spite of this decline in sick business units, it is still evident that major threat of economic slowdown in India, is caused by sick industries and thus exploration is needed on investigating the causes of sickness, such that any measures can be taken to deal with it. 

Problem Statement and Research Significance

The growth of Indian economy is mainly dependent on the development of industries and business units, which not only offer contribution in economic expansion of the country but also play vital role in enhancing employment prospects. The burden from economy is shared by businesses at large, and among large scale industries, the small and medium businesses are also said to play substantial role in economic growth (Navulla, Golla & Sunitha, 2016). The effective distribution of wealth is assisted by growth of businesses and mainly the growth of economy is the outcome of growth of industries. However, it is witnessed that in India, industrial sickness has remained one of the key issue, which has not only affected the growth rate of industries but has also influenced the economic growth of India as a whole. Of the small and medium sized businesses, the substantial proportion of business units have closed, which have laid numerous direct as well as indirect burden on the economy (Mondal & Roy, 2013). Based on this notion, there is greater need to conduct a study through which causes of industrial sickness can be identified, as well as remedial measures can be explored through which issue of sickness can be addressed.