SICKNESS IN SMALL INDUSTRIES – REASONS AND REHABILITATION.pptx

SICKNESS IN SMALL INDUSTRIES – REASONS AND REHABILITATION

1. SICKNESS IN INDUSTRIES Reasons & Rehabilitation 

2. SICKNESS Sickness means Unhealthy condition/Poor The sickness in small scale enterprises is very much looming and large as composed to medium and big industries

3. INDUSTRIAL SICKNESS Refers to a situation when an industrial firm performs poorly, incurs losses for several years and often defaults in its debt repayment obligations. Which is not healthy denotes reasonable profit, return on capital employed, maintains appropriate reserves etc

4. IDENTIFY INDUSTRIAL SICKNESS Continuous decline in gross output compared to the previous two financial years. Delays in repayment of institutional loan, for more than 12 months. Erosion in the net worth to the extent of 50 percent of the net worth during the previous accounting year

5. SICK INDUSTRIAL UNIT when industrial unit is fails to generate surplus on a continuous basis and depends on frequent infusion of external funds for its survival. I ndustrial unit tends to show signs of financial distress starting with: Short term liquidity problems Revenue losses Operating losses Moving in the direction of over use of external Credit

6. According to sick industrial unit means To a Layman:- “ A sick unit is one which is not healthy. “ To an investor:- “ It is one which is not giving dividends.” To a Banker:- “ It is a unit which has incurred cash losses in the previous years and is about to repeat the same performance in current and following years. To an Industrialist:- “ It is unit which is making losses and about to close.”

7. CONSEQUENCES CAUSES OF INDUSTRIAL SICKNESS

8. INDUSTRIAL SICKNESS CAUSES I nadequacy of working capital N on-availability of credit Poor and obsolete technology Non availability of raw material Marketing problems Erratic power supply

9. Labor problems Poor Management Inadequate attention to R&D Diversion of resources Globalization Dispute among partners Overambitious projects

10. EXTERNAL OR EXOGENEOUS CAUSES Changes in the industrial policies of the government Inadequate and untimely availability of necessary inputs lack of demand for the product recession in the economy loss to emplacement opportunities Frequent industrial strikes and labour and employee unrest Emergence of industrial unrest Adverse effect on perspective investors and entrepreneurs. Wastages of scarce resources Loss of revenues to government. Shortage of financial resources especially working capital Natural calamities like floods, drought etc ,

11. Improper Credit Facilities Delay In Advancing Of Funds Unfavorable Investment Climate Shortage Of Inputs Import Restrictions On Essential Inputs Change In International Marketing Scene Excessive Taxation Policy Of Government

12. Infrastructural bottlenecks: a) Irregular supply of critical raw materials b) Transport bottlenecks c) Chronic power shortage Government controls and policies: a) Government price controls b) Abrupt change in government policies c) Fiscal duties Market Constraints: a) Market saturation b) Revolutionary technological advances rendering one’s products obsolete

13. Extraneous factors: a) Natural calamities b) Political situation c) Sympathetic strikes

14. INTERNAL CAUSES Inappropriate Financial Structure Poor Utilization Of Assets Inefficient Working Capital Management Lack Of Proper Costing And Pricing Absence Of Financing, Planning & Budgeting Improper Utilization Or Diversion Of Funds Market Recession

15. Technical feasibility: a) Inadequate Technical know-how b) Outdated production process Economic viability: a) High cost of inputs b) Breakeven point too high c) Unduly large investment in fixed assets d) Under-estimation of financial requirements Production management: a) Poor capacity utilization b) High wastage c) Inappropriate product-mix d) Inadequate maintenance and replacement

16. Labour management: a) Poor labour productivity b) Excessive manpower c) Lack of trained/skilled labour d) Excessively high wage structure Marketing management: a) Lack of market research and market feedback b) Defective pricing policy c) Dependence on limited number of customers Financial management: a) Inadequate working capital b) Deficiency of funds

17. Administrative management: a) Excessive expenditure on R & D b) Incompetent management c) Lack of timely diversification

18. SIGNALS /SYMPTOMS OF INDUSTRIAL SICKNESS Decline in Capacity Utilization Shortage of Liquid Funds/ cash Debt /external fund increase Deteriorating financial ratios Inventories in Excessive Quantities Frequent Break Downs in Plant & Equipment's

19. Decline in the Quality of Products Frequent Turnover of Personnel Technical Deficiency Deteriorating financial ratios Continuous decline in prices of shares Delay in audit of annual accounts Delay and default in the payment of statutory dues morale degradation of employees Irregularity in Maintaining the Bank Accounts Huge losses to banks & financial institutions.

20. SICKNESS IN INDUSTRY CAN BE CLASSIFIED INTO:   Genuine sickness : beyond the control of the promoters of the concern despite the sincere efforts by them, Incipient sickness : non-viability of the project, and Induced sickness which is due to the managerial incompetence and wrong policies pursued deliberately for want of genuine stake. unscrupulous promoters adopt fraudulent practices to start a concern and to get away with the money obtained by fraud and deceit.

21. SICKNESS MAY OCCUR AT STAGE First Stage: It happens during planning and construction stage. The unit may be located at an uneconomical location, adopted an inefficient method of production and/or planned to produce an obsolete item. Second stage: Unit might have committed some mistakes during recruitment, training of the workers, un estimation of various inputs (fund, labour, power, water etc.). It cannot be corrected easily at late hours. Third Stage: It may arise even if the unit is in full swing. It may be due to demand of product which might have changed. New technologies might have taken place and/or new or more competitors have entered in the market

22. TWO MAIN FACTORS: The sickness prone unit: To present a better and sound image, one must do lot of window dressing. Financial data: It may be available after a gap of one year. However, an early identification of symptoms makes the task of detecting easier and fast.  

23. FEATURES:   (1) Socio-economic problem: Industrial sickness is a serious socio-economic problem, which is result of unplanned industrial growth. It is a universal problem. (2) Outcome of various causes: Industrial sickness is the net result of variety of financial, technical, managerial, personnel and marketing causes faced by industrial units. (3) Visible symptoms: Industrial sickness is visible by various symptoms such as financial difficulties, low profitability, inability to pay interest and loan installments.

24. (4) Serious consequences: The consequences of industrial sickness on employees, consumers, investors, management and the national economy are serious. In addition, banks and term lending institutions come in difficulties due to industrial sickness. (5) Gradual process: Industrial sickness takes place in a gradual manner and not suddenly/overnight. Various stages are involved in this process. They include normal unit tending towards sickness, beginning of sickness and confirmed sickness with normal features. Preventive measures during incipient sickness are useful for avoiding sickness.

25. REMEDIAL MEASURES FOR INDUSTRIAL SICKNESS

26. Identifying sickness at initial stage Sickness in small scale industries are not a sudden phenomenon but it is a gradual process taking 5 to 7 years eroding the health of a unit beyond cure. Therefore, the identification and detection of the sickness at incipient stage is the first and foremost measure to detect and reduce industrial sickness. Sickness must be identified at initial stage. Improving Infrastructure Infrastructure facilities can be improved by setting up industrial estates. Common testing centres etc., Infrastructural problems can be solved by improving the roadways, waterways, establishing telecommunication systems. Technology Up-gradation Funds may be provided by the financial institutions for adoption of advanced technology. Similarly, some sort of training may be provided for use of the latest technology to overcome technological problems

27. Liquidation is better to wind up the business when there is no possibility to revive the unit. Government Interventions Interventions must be made by the government to prevent sickness. Periodic review of financial statements can help to identify and prevent sickness at initial stage. Financial assistance Lending agencies need to relax their lengthy process and other norms for extending credit to the SSIs . To combat the incidence of sickness financial institutions should grant credit without delay to SSIs sector

28. Training A proper environment must be created where an entrepreneur will be educated and will have a proper knowledge, skill and experience about internal and external environment of business to compete with large-scale industries and multinational companies. Rehabilitation Potentially viable sick units should be dealt well for the purpose of rehabilitation. Rehabilitation is a remedy considered for industrial units, which have already become sick and for the units that are on the verge of collapse.

29. Term Lending Institutions: take the following steps, sickness can be prevented: i . Proper appraisal of management of the project ii. Ascertaining the marketability of the end products of the unit before lending iii. Extra care in assessing the suitability, technical feasibility of plant and machinery if it is second-hand one iv. Ensuring the timely implementation of the project. Commercial Banks: are the ones providing resources for serving successfully, they have to take the following steps to prevent sickness: i . Noticing that the withdrawals in the account do not exceed the permissible drawing power continuously over a period of time ii. Frequent scrutiny of the ledger account with the master intelligences iii. Frequent interaction with the entrepreneur

30. The Entrepreneur : The successful running of the unit surely depends on the ability and sustainable effort of the entrepreneur. It is the entrepreneur who conceives, implements, and manages the project to avert sickness in the unit.They can prevent sickness by: i . Selecting the supplier of the machinery with care ii. Doing the homework properly iii. Paying adequate attention to the deficiencies in the unit iv. Careful selection of the partners. The Government: can help in controlling sickness by not making sudden changes in the industrial policy such as – the following, which may destabilize the small units: i . Several changes related to existing units ii. Policy to discourage new investment iii. Withdrawal of subsidies iv. Opening up of reserved items for big industries.