This Issue - Icwai

Introduction
FINANCIAL FINANCIAL MANAGEMENT
MANAGEMENT
Industrial Sickness in India : Magnitude and
Intensity
Growing incidence of industrial sickness in the
small, medium and large scale sectors has
become the cause of considerable concern for
all quarters. Incidence of industrial sickness is no
doubt a global phenomenon. But then, can our country
accept such a situation? Developed country’s economy
has the resilience to absorb the economic imbalance
brought about by the closure of industrial units. The
problem of industrial sickness has, however, adverse
repercussion on the economy of our country as it can
neither afford unemployment nor loss of production
by keeping the capital assets idle. With opening up
of Indian economy in the global market, Indian
industries have been finding it very difficult
to compete under the changed environment.
Globalization—which is the centrepiece of process of
change in the 1990s followed by liberalization and
privatization—led the Indian industries to much
better interdependence in the world economy.
Process of globalisation has provided tremendous
opportunities to the Indian industries with respect to
trade, inflow of foreign investment, technology, skills,
and market access. On the other hand, however, it
has pushed Indian industries to greater risk of being
marginalized as they may not be able to integrate fully
into the global economy and enjoy its benefits. In such
a situation, one needs to assess the actual magnitude
and economic impact of sickness in Indian manufacturing
industries.
Objective
The aim of this paper is to present a comprehensive
assessment of actual magnitude of industrial
sickness on the basis of official data available from
the Reserve Bank of India (RBI) and the Board for
Industrial and Financial Reconstruction (BIFR). Statewise
and industry-wise distribution of industrial
Dilip Kumar Datta*
sickness as reflected from the BIFR data has also been
described in this paper, besides constructing an index
of intensity of sickness for making a comparative
analysis.
Magnitude of Industrial Sickness
According to the Reserve Bank of India, the total
number of sick industrial units in this country was
24,550 in 1980-81. By the end of 2002-03, the number
of sick units has increased to 1,71,376; thus, over a
period of twentytwo years, the number of sick
industrial units has increased, on year-on-year basis,
by 12.49% per year; the compound growth rate is
calculated to be about 9.23% (Table 1). During this
period, the total amount of blocked bank credit (WPI
adjusted) increased from Rs. 1,809 crores to
Rs. 8,418.30 crores. Table 1 indicates that the real (WPI
adjusted) non-performing bank credit blocked by the
sick units increased at a rate of 7.90% per year (the
compound growth rate is 7.24%), which is higher than
the average growth rate of the GDP of this country
during this period. In terms of numbers, the smallscale
industrial (SSI) units account for 98.79% of the
sick industrial units. Out of 1,71,376 sick industrial
units, number of SSI units had been as high as 1,67,980
in 2002-03. In terms of growth also, the number of
sick SSI units outperformed the Non-SSI units. Over
the last two decades, the number of sick SSI units,
increased at the rate of 12.86% on year-on-year basis;
the Non-SSI units on the other hand, increased only
at the rate of 4.27% per year. The other noteworthy
feature is that the fluctuation in the number of sick
SSI units had been much higher than that of the Non-
SSI units—a fact reflected in a higher value of
coefficient of variation in the time series data on the
number of SSI units, as reported in Table 1.
* M. Tech, MBA, Ph.D., Director & CEO, Sayantan
Consultants Pvt. Ltd., Kolkata
782 The Management Accountant |September 2011