The causes for India’s industrial sickness can be both internal and external.
Internal factors mainly relate to the poor quality of top management.
- Industry specific factors: These relate to stagnation or recession in the industry (e.g.: the textile industry), competition faced by the unit (e.g.: small units, rayon grade, pulp unit). Entry of MNC’s has contributed to the sickness of several firms, particularly in the SSI sector.
- Government related factor: These include tax burden on the unit, especially import duties and sales tax; legal restrictions on the units; expansion/diversification; frequent changes in government policies affecting the unit.
- 3. Financial institutions related factors: These include harshness in dealing with the unit; delay in providing finance to the unit; inadequate working and / or long term capital provided by them and their inexpert assessment of the client’s finance proposal
- a) Role of government: The government must play an active role to protect sick units especially those in Small scale industries which are fighting hard to compete in the era of globalization.
- b) Role of financial institutions: The following are the ways by which sickness can be prevented by financial institutions
- 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
c) 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 for deciding whether to enter the industry or not.