Industrial sickness in India: magnitude and identification criteria

Abstract

The main purpose of this paper is to examine the criteria used by official agencies to identify industrial sickness and highlight the limitations of such identification criteria especially in the context of the nature of remedial action that needs to be taken to deal with this problem. Available empirical evidence indicates that, in the case of large industrial units, industrial sickness appears to be more of an industry-specific problem than a general problem as such. Official yardsticks for identifying industrial sickness are based on the criterion cash loss and the criterion of net worth erosion. Such criteria have the undesirable effect of delaying the identification of isck units by at least a couple of years or more. The recent concept of "weak" units is also unlikely to achieve the purpose of detecting industrial sickness at the incipient stage. As a result, a large proportion of the identified sick units is found to be non-viable and, therefore not eligible for any rehabilitation package. Under these circumstances, restructuring the procedures adopted by the financial institutions for identifying industrial sickness and introducing appropriate systems for early detection and prevention of sickness appear to be the main long term remedy for this problem.