 we are going to discuss an important topic of MCOM first semester business environment courses the topic is industrial sickness this discussion will be divided into three parts part one will discuss the meaning and definition of industrial sickness and parameters of signals of sicknesses part two will be discuss about the causes of industrial sickness and part three will include effects of industrial sickness and remedial measures to be taken to be prevent industrial sickness coming to part one lets know the meaning of industrial sickness sickness in industry is a universal phenomenon it is one of the most complex problems of the Indian economy in India the term sickness refers to economically unviable forms which are kept alive in the public interest mind it in the public interest those are kept alive by means of subsidies of various kinds in spite of different measures taken by the government the problems still persist sickness not only lose their network but they also lose capital raise from sources other than ownership the government of India enacted special legislation to tackle this problem the sick industrial companies special provision act was enacted in 1985 with the objectives of timely detection of sick units apart from determining sickness the main objectives of the act that is sick act are to expedite the closure of unviable units and the revival of potentially viable units however the sick was replaced later on and the revival and rehabilitation of sick companies are now deal with the companies act 2013 now coming to the definition defined bodies have given different definitions of industrial sickness according to reserve bank of India a sick unit is that which has incurred a cash loss for one year and is likely to continue incurring losses for the current year as well as the following year and unit has an imbalance in its financial structure according to this definition if we look minutely if an industry has incurred loss in the previous year likely to incur loss in the current year and probability of loss in the second year in the next years then the industry may be treated as sick industry such type of industry also faces financial structure imbalances the next important definition of sick industries are given by the sick industrial companies act 1985 according to this definition a sick industrial unit is an industrial company being a company registered for not less than 7 years which has at the end of any financial year accumulated losses in that financial year and in the financial year immediately preceding it this definition has also covered the angles covered by the definition given by reserve bank of India however according to this definition a company that has not been completed 7 years of its registration cannot be treated as sick industry it means they assume that up to 7 years the company may be secure loss but after 7 years it should be get profit now the question arises how will we know that an industry is sick the industry itself gives some warning signals that indicate that it is becoming sick the most significant warning signals are to be discussed first the first warning signal of a sick industry is shortage of liquid funds an enterprise facing shortage of liquid funds cannot pay for the purchase of raw materials and it delays the payment to its labor besides this the industrial unit in all violations of legal provisions stops meeting its statutory obligations such as contributions to employees for within fund payment of tax etc the second important signal of a sick industry is the growth of excessive inventories excessive accumulation of raw materials and failure in selling of finished goods is another warning signal of industrial sickness inventories need to be converted into cash piling of inventories causes serious problems in managing working capital the next symptoms is non-payment of interest and instruments non-payment of interest on time loans or non-payment of installments is another signal of impending sickness timely payment of loans is very important defaulting payments damage the relationship with the banks or the other financial institution the next signal is under utilization of capacity if a firm is not able to utilize its machinery labour force, land and buildings etc up to their capacity it feed its survival for its survival every unit of production must cross the break-in point by utilizing its full capacity under utilization of capacity has lots of hidden cost for the firm this needs to be avoided the next important signals of industrial sickness less return on investments a comparison of the rate of return with the prevailing rate of interest is indicative of the health of the enterprise for obtaining rate of return on investment the net profit as a proportion of the total investment in the enterprise has to be taken the last signals a sick industry shows that unfavorable financial ratios various financial ratios calculated on industry are to be favorable as for example if the ratio of current assets to current liabilities is less than 1 is to 1 an enterprise is considered as sick it indicates losses and declining liquidity of the firm a declining debt-equity ratio indicates movement towards sickness after discussing those signals we can summarize that the vital parameters to be categorized a firm as sick unit are continuously facing shortage of finance continuous default in repaying the dues of industry continuous default in repaying the installments we have fallen due and continuous losses if an industry shows these signals that industry may be treated as sick industries now hello viewers coming to the part 2 of this discussion in this part we will discuss about causes of industrial sickness why industrial sickness occurs the various causes of industrial sickness may be broadly divided into two types internal and external causes internal causes are created inside the firm or the industry the firm may control over them the firm may control those internal causes the external causes are created outside the firm the firm does not have control on such causes now coming to internal causes the first internal cause of sickness is lack of finance lack of finance is one of the main cause of industrial sickness weak quality-based poor utilization of assets inefficient working capital management absence of costing and pricing absence of planning and budgeting and inappropriate utilization of diversion of funds etc creates this problem another internal cause of sickness is bad production policies of the firm bad production policies include wrong selection of site inappropriate plan and machinery bad maintenance of plant and machinery lack of quality control lack of standard research and development the next one is marketing problem marketing problem is also an internal cause wrong demand forecasting selection of inappropriate product mix absence of product planning wrong market research methods bad sales promotions etc may result in sickness of the firm the next one is inappropriate personal management inappropriate personal management like bad wages and salary administration bad labor relations lack of behavioral adverse causes dissatisfaction among the employees and workers and it may be cause of industrial sickness the next one is ineffective corporate management ineffective corporate management is another internal cause improper corporate planning lack of integrity in top management lack of coordination and control etc may lead to industrial sickness the causes that have been discussed above were internal causes the firm has control over those factors now we will discuss about external causes of sickness coming to external causes one of the most important external cause of industrial sickness is personal constraint sometimes skilled laborers or manpower needed for the industry may not be available in the market not availability of skilled laborer or manpower creates personal constraint in the industry the next external causes marketing constraints the sickness may arrive due to liberal and tough licensing policies restraint of process by bull processors changes in global marketing scenario excessive tax policies by the government market precision etc the next one is production constraints production constraints is another reason for sickness which comes under external cause of sickness this arises due to shortage of raw material shortage of power high price of fuel import export restriction etc finance constraints is another important external cause for the sickness especially for small scale units this arises due to credit restraints policy delay in distribution delay in disbursement of loan by the government unfavorable investments fear of nationalization etc one of the most significant external cause of industrial sickness is energy constraints energy crisis arising out of power cuts out of power cuts out of shortage of coal and oil have been a serious problem for many industrial units next one is shortage of raw materials inability of the units to achieve optimum capacity due to shortage of raw materials poor agricultural output due to natural regions etc are included in shortage of raw materials infrastructural problems arising outside the industry like transport facility etc may also influence in industrial sickness next one is artificial economic constraints like government control of product mix and prices competition faced by the unit and excess capacity in the industry also may cause industrial sickness there may be some other problems like shortage of working capital liquidity constraints etc that may cause industrial sickness both internal and external causes of industrial sickness discussed above may be further divided into loan and a shift categories loan causes are created at the very beginning of the establishment of the farm while the a shift causes are earned by the farm itself during its operation now coming to the bone sickness first bone sickness is wrong project selection if an industry does mistake in selecting the project it may leads to sickness later on lack of experience on the part of the promoters wrong selection of the project faulty project planning may give birth to sick units next one is location problem it is another important bone cause of sickness for example a high technology based project being based in area without skill labour or supporting infrastructure may cause sickness the next one is delay in supply of necessities delay in supply of equipment slippage in the schedule of civil works etc may cause cost escalations leading to liquidity issues and capital shortage it is also an important bone cause of industrial sickness the next one is scarcity of funds industry that started with scarcity of funds and faulty financial management from the very beginning of its inception may also leads to sickness the next one is technological problem technological factors like selection of absolute and improper technology or outdated technology while project is being executed wrong collaboration etc also can create industrial sickness next one is incorrect market assessment incorrect assessment of the market potential or faulty demand forecasting change in market conditions etc also cause industrial sickness now we will discuss the factors lead to industrial sickness which are earned by the industries during their day to day operations they are called as if sickness number one as if cause of sickness is bad management bad management that is inexperience in efficiency lack of professional expertise etc poor production management poor labour management poor resource management etc are also belong to the bad management problem according to Tiwari committee report about 65% of the large sick units were affected by this problem next one is unnecessary expansion sometimes unnecessary and unwarranted expansion and diversion of resources also causes sickness another as if cause of sickness is poor inventory management of finished goods as well as the inputs next one is unable to face the changing environment failure to modernize the productive apparatus change the product mix to suit the changing environment hence it may create sickness last but not the least poor labour management relationship and the associated poor worker moral and low productivity is also an important cause of industrial sickness in this part we have discussed about the various causes of industrial sickness in the next part we will discuss about effects or consequences of industrial sickness hello viewers coming to part 3 in this part we will discuss about the effects or consequences of industrial sickness industrial sickness may causes serious consequences in an underdeveloped labour surplus economy like India it is a serious problem that has affected the small, medium and large industries it not only affects owners employees, creditors and suppliers it causes wastage of national resources and create social unrest sickness is a matter of serious national concern the first consequence of sickness is under utilization of capital assets under utilization of capital assets is a drain on the capital of any nation it is very much affects the capital formation process of less developed and developing countries it also causes declines the level of entrepreneurship increase in industrial sickness discourages entrepreneurship in economics, land, labour and capital are referred to as the factors of production it is only entrepreneurship of project promoters that brings together the factors of productions next one is investors confidence sickness implies in investor confidence the investor confidence reaches lower flow thus capital is not put to the productive use the next consequence is unemployment industrial sickness results in large scale unemployment and industrial unrest another important consequence of industrial sickness is affect profitability profitability of banks and financial institutions gets affected since they do not get back their funds invested in the projects that have gone seek nor do they earn interest on their invested funds another consequences is threatening industrial environment seek industries threatens the industrial environment widespread labour and threatening industrial environment in the country the enterprises lose morale to sustain their activities wastage of resources is another consequence of industrial sickness wastage of huge resources in these seek units therefore those wastage resources influence in the economy at a large scale another important consequence of industrial sickness is impact on other related units creating adverse impact on the other related units closer of one industrial unit affects its suppliers financial loss to banks causing the huge financial losses of banks and other lending institutions locking up funds in these seek units now coming to the preventive measures to be taken to tackle the problem so many measures to be taken for revival or tackle the problem of industrial sickness whenever the business environment becomes congenial the enterprise should look for formulation and implementation of some turn around strategies turn around strategies involves in management review, root failure cause analysis and short analysis to determine why the enterprise is failing once the analysis is completed a long term strategic plan restructuring plans are to be created some of the measures to be adopted to prevent and correct industrial sickness are creation of financial resources the industrial unit should pay special attention towards creation of financial resources the short term capital should not be used for medium term or long term investment next one is developing managerial skills the managerial skills should be developed by providing training to the entrepreneurs of small scale industries, industrial units the next one is government efforts to prevent industrial sickness the government should afford priority in allocation of scarce raw materials extending marketing assistance and granting certain rebates and concessions to small units and more as to such units which show better record of performance next one is overhead and cost of capital should be reduced, the cost of capital should be reduced and effort should be taken to reduce overhead cost in SSI units the next one is proper use of funds funds should not be utilized elsewhere other than the industry other than the units, other than the firms the next one is inventories management industrial units should maintain inventories at optimum level so that cost should be reduced and it does not affect the scale of the industry adversely last but not the least measures is proper guidelines the Reserve Bank of India and other promotional organizations should issue guidelines for the smooth functioning of industrial units and to make professional management expertise available for small enterprises in this discussion we have covered various aspects of industrial sickness in the next discussion we will have discussion about another important topic that is patents and trademarks thank you