Industrial sickness refers to the situation wherein an industrial firm performs poorly, incurs losses for several years and often defaults in its debt repayment obligations. The problem of industrial sickness has grown significantly over the years in India and a large number of industrial units were affected by it.
There are various causes of industrial sickness. Firstly, an internal cause can be faults at the planning and construction stage. Faulty decisions like setting up the firm in the wrong location i.e. a location which lacks infrastructure facilities or lacks market availability cause problems in the long run. Unplanned production, unbalanced capital structure etc. are all faulty decision which makes a firm sick.
Defective plant and machinery is another reason for industrial sickness. It has been observed that small scale sector do not seek professional technical guidance in choosing machinery. At times technology adopted is outdated and inappropriate. Production with this sort of technology is bound to be inferior and likely to suffer cost and price disadvantage.
An external cause of industrial sickness is demand and credit restrain. During the times of recession, there is a steep decline of demand in the market. This causes losses to individual units especially the products with high prices like automobiles. If such situation persists for long durations, then industrial units are prone to turn sick.
The most important internal cause of industrial sickness is management problems. Management can make or break a firm. Incorrect managerial decisions pertaining to the fields of finance, production, marketing etc. can ruin a business. Absence of quality control systems, lack of inventory, inadequate maintenance are some examples of mismanagement.
Entrepreneurial incompetence is yet another reason for industrial sickness. Many entrepreneurs in the small scale sector do not have basic knowledge of business, manufacturing, costing, accounts etc. Units set up by them often turn sick.
Industrial sickness can have serious consequences. It is a set back for employment opportunities. When a firm turns sick, it can actually go out of business. Closure of an industrial firm renders its workers unemployment. This situation can be more serious if a big firm with a large number of employees gets shut down. Unemployment brings a lot of complications with itself. This can cause industrial unrest. Closure of a big firm also causes labour unrest which can result in industrial strikes which threatens the peace of industrial environment.
Industrial sickness also leads to wastage of resources. When a sick firm is shut down, resources invested in that unit are wasted. In case of large firms this problem is more serious as a lot of investment is made in its plants and machinery. In fact other industries which are linked to a sick firm through backward or forward linkages, also incur some losses.
Closure of large sick units also effects investors and entrepreneurs and creates a psychology of despair. The prices of share fall down and affect the entire stock market. Even banks and financial institutions which have granted loans to these units suffer losses. Locking up funds in the sick units negatively affects the future lending programmes of banks and financial institutions. Industrial sickness also results in loss of revenue of government. Since industrial sickness has such a wide range of impact, it is considered as a social problem in India.