digital divide network - article database

Small and Medium Enterprises (SMEs) play a vital role for the growth of Indian economy by contributing 45% of industrial output, 40% of exports, employing 60 million people, create 1.3 million jobs every year and produce more than 8000 quality products for the Indian and international markets. SME’s Contribution towards GDP in 2011 was 17% which is expected to increase to 22% by 2012. There are approximately 30 million MSME Units in India and 12 million persons are expected to join the workforce in the next 3 years. SMEs are the fountain head of several innovations in manufacturing and service sectors, the major link in the supply chain to corporate and the PSUs. By promoting SMEs, the rural areas of India will be developed.

SMEs are now exposed to greater opportunities than ever for expansion and diversification across the sectors. Indian market is growing rapidly and Indian entrepreneurs are making remarkable progress in various Industries like Manufacturing, Precision Engineering Design, Food Processing, Pharmaceutical, Textile & Garments, Retail, IT and ITES, Agro and Service sector.

Definition of MSMEs in India

CHALLENGES

Despite its commendable contribution to the Nation's economy, SME Sector does not get the required support from the concerned Government Departments, Banks, Financial Institutions and Corporate, which is a handicap in becoming more competitive in the National and International Markets.

SMEs faces a number of problems - absence of adequate and timely banking finance, limited capital and knowledge, non-availability of suitable technology, low production capacity, ineffective marketing strategy, identification of new markets, constraints on modernisation & expansions, non availability of highly skilled labour at affordable cost, followup with various government agencies to resolve problems etc.

NEED OF HOUR:-

To empower the SME Sector to take its rightful place as the growth engine of Indian economy, it is necessary to support the SMEs, educate and empower them to make optimum utilization of the resources, both human and economic, to achieve success. The SMEs need to be educated and informed of the latest developments taking place globally and helped to acquire skills necessary to keep pace with the global developments.

SME Chamber of India has decided to start various activities to empower and educate the SME Sector by organising various trade promotional activities in India and abroad. Also provide assistance and support for the promotion of domestic business as well as export promotion of the SME sector.

The New Industrial Policy 1991

The Industrial Policy announced on July 24, 1991 heralded the economic reforms in India and sought to drastically alter the industrial scenario in our country. The most visible sign of the country s economic crisis in early 1991 was:

Extremely low foreign exchange reserves of Rs. 2400 crore (just enough to buy from abroad only three weeks requirements.)

Inflation was as high as 13.5% This policy expanded the scope of the private sector by opening upmost of the industries for the private sector and did away with the entry and growth restrictions. The most important initiatives are with respect to the virtual scrapping of industrial licensing and registration policies, an end to the monopoly law and a welcoming approach to foreign investments

Objectives of the Industrial Policy of the Government are:-

·         To maintain a sustained growth in productivity;

·         To enhance employment;

·         To achieve optimal utilization of human resources;

·         To attain international competitiveness

Development of indigenous technology through greater investment in R&D and bring in new technology to help Indian manufacturing units Incentive for industrialization of backward areas

Ensure running of PSUs on business lines and cut their losses

Protect the interests of workers

Abolish the monopoly of any sector in any field of manufacture except on strategic or security grounds.

to transform India into a major partner and player in the global arena

Redefinition of the role of the Public Sector 

The number of industries reserved for the public sector was reduced to eight and it was later pruned to two i.e. atomic energy and railway transport.

 Also, in respect of public sector enterprises, the following measures were adopted:

Public enterprises which are chronically sick and unlikely to be turned around to be referred to the Board for Industrial and Financial Reconstruction for formulation of revival / rehabilitation schemes.

In order to encourage wider public participation, a part of the Governments shareholding in the public sector would be offered to mutual funds, financial institutions and the general public.

Board of PSU to be more professional and have greater powers.

Thrust to be on performance improvement and management would be granted more autonomy in operation

INDUSTRIAL SICKNESS

Introduction 

Definition of a sick unit is given by Sick Industrial companies act, 1985. According to the act “ The sick industrial company is a company which has at the end of any financial year accumulated losses equal to or excluding its entire net worth and has also suffered cash losses in that financial year and in the financial year immediately preceding it.”

Extent of sickness  

    Industrial sickness is growing at an annual rate of about 28% and 13% respectively in terms of number of units and out standing number of bank credit. It is reckoned that as of today there are more than 2 lakhs sick units with an outstanding bank credit of over Rs7000crore nearly 29000 units are added to sick list every year. 

Industrial sickness especially in small-scale Industry has been always a demerit for the Indian economy, because more and more industries like – cotton, Jute, Sugar, and Textile small steel and engineering industries are being affected by this sickness problem.

Causes of sickness of ssi's 

Most of the Indian authors and researchers have classified the different types of industrial sickness under two important categories.  They are: 

1) Internal Cause for sickness: 

We can say pertaining to the factors which are within the control of management.  This sickness arises due to internal disorder in the areas justified as following:

a) Lack of Finance:  This including weak equity base, poor utilization of assets, inefficient working capital management, absence of costing & pricing, absence of planning and budgeting and inappropriate utilization or diversion of funds.

b) Bad Production Policies :  The another very important reason for sickness is wrong selection of site which is related to production, inappropriate plant & machinery, bad maintenance of Plant & Machinery, lack of quality control, lack of standard research & development and so on.

c) Marketing and Sickness: This is another part which always affects the health of any sector as well as SSI.  This including wrong demand forecasting, selection of inappropriate product mix, absence of product planning, wrong market research methods, and bad sales promotions.

d) Inappropriate Personnel Management: The another internal reason for the sickness of SSIs is inappropriate personnel management policies which includes bad wages and salary administration, bad labour relations, lack of behavioral approach causes dissatisfaction among the employees and workers.

e) Ineffective Corporate Management:  Another reason for the sickness of SSIs is ineffective or bad corporate management which includes improper corporate planning, lack of integrity in top management, lack of coordination and control etc. 

2) External causes for sickness: 

a) Personnel Constraint: The first for most important reason for the sickness of small scale industries are non availability of skilled labour or manpower wages disparity in similar industry and general labour invested in the area.

b) Marketing Constraints: The second cause for the sickness is related to marketing.  The sickness arrives due to liberal licensing policies, restrain of purchase by bulk purchasers, changes in global marketing scenario, excessive tax policies by govt. and market recession.

c) Production Constraints:  This is another reason for the sickness which comes under external cause of sickness.  This arises due to shortage of raw material, shortage of power, fuel and high prices, import-export restrictions.

d)  Finance Constraints:  another external cause for the sickness of SSIs is lack of finance.  This arises due to credit restrains policy, delay in disbursement of loan by govt., unfavorable investments, fear of nationalization. 

REASONS FOR SICKNESS IN SSI’s             

Production Related Reasons:

• Faulty Product Mix
• Backlog of Production
• Poor Quality of end product
• Delayed delivery schedule

Financial Reasons:

• Low Profitability
• Low fund generation
• Poor liquidity
• Step Cost structure
• Lack of financial resources
• Lack of credit facility
• Faulty credit utilization
• Low share value

Market Reasons:

• Poor marketing strategy
• Imbalance between production & marketing
• Wild market shifts
• Lack of awareness of consumer’s preferences
• Lack of specific market segmentation
• Poor distribution network
• Poor market performance 

Signals of sickness 

 The following actions of the unit indicate that the unit is sick or going to be sick:

• Continuous irregularity in cash credit accounts ;
• Low capacity utilization;
• profit fluctuations, downward sales and fall in profits followed by contraction in the share market;
• Failure to pay statutory liabilities;
• Larger and longer outstanding in the bills accounts;
• Non submission of periodical financial data /stock statement etc. in time;
• financing capital expenditure out of funds provided for working capital purposes;
• Rapid turn over of key personnel;
• Existence of large no. of law suits against a company;
• Rapid expansion and too much diversification within a short time;
• Any major change in the share holdings. 

Effect of sickness 

• Industrial Sickness contributes to high cost economy. This in turn, will affect the competitiveness of the economy at home and abroad.
• Dead investment is a burden on both banks and budgets and ultimately consumers should pay the high cost.
• Money locked up in sick units gives no returns and effects the availability of resources to the other viable units 

Remedies

  Majority of sick units is retrievable in order to tackle the problem of sickness from the two angles the role of three agencies assumes significance: a) The government   b) Financial institutions and the industry associations  

a) The Role of Government: If the number of units in the country has increased some 10 times since independence and if we have diversified industrial structure with wide spread entrepreneurship the credit for this largely belongs to government.      

     Second area where the government can be helpful is Vis-à-vis industrial licensing. The very existence of licensing and monopoly regulation legislation implies that there is a stampede to “to get in” when ever licensing is liberalized for an industry or an economy as a whole  

 b) The Role Of Financial Institutions: The following are the ways by which sickness can be prevented by financial institutions :

a)     Continuous monitoring of unit

b)    Careful project appraisal

c)     Professional institutional response to unit’s problems

d)    Required systems at client units

e)      Incentives to units to remain healthy 

 c) The Role Of Indutry Associations : A good practical review by each industry association of installed and usable capacity in the industry , capacity utilization , growth trends , problems etc should be useful 4 the potential new entrants 4 deciding whether 2 enter the industry or not. The industry can have some sort of 1st aid cell this could consist of professionals who could go to the aid of a unit that is beginning to fall with the offer of managerial and technical help also. 

Curative measures  

These measures include how to cure the sickness after it has crept in. There are lots of agencies which help cure Industrial sickness.   

There is Industries (Development and Regulation) Act, 1951, which provides for the takeover of a sick unit by the Government of India. Before resorting to a takeover, other alternatives like rehabilitation through the concerned state government and financial institutions or for the merger of a sick unit with a healthy unit could be explored. 

Then there is the Sick Industrial Companies (special provisions) Act, 1985, which was passed by parliament and received the assent of president in January 1986. It was amended in December 1991 so as to bring government companies within the preview of the Act.   

Further, there is the Industrial Reconstruction Bank of India (IRBI) which came into being on March 20th 1985 by converting the erstwhile Industrial Reconstruction Corporation of India. It provides assistance for reconstructions and rehabilitation of the sick industrial units by granting those loans and advances, underwriting shares and debentures etc.

For the sick units in the small scale sector, separate facilities are available. State Finance Corporations and commercial banks will be asked to devise a scheme for the rehabilitation of sick units in the small scale sector, and the assistance given by them for the revival of such units will be eligible for refinancing by the IRBI at the confessional rate of interest. 

Conclusion 

       Government should hike its spending to create more jobs and boost the manufacturing sectors in the country.

       Government should try to increase the export against the initial export.

       The way out for builders is to reduce the unrealistic prices of property to bring back the buyers into the market. And thus raise finances for the incomplete projects that they are developing.

       The falling rupees against the dollar will bring a boost in the export industry. Though the buyers in the west might become scarce.

       The oil prices decline will also have a positive impact on the importers.      

Industrial sickness is one of the most complex problems of the Indian economy. Inspite of the different measures taken by the Government the problem persists. The rise has remained unabated, even in the years after the passage of the Sick Industrial Companies Act (SICA) and the creation of the Board for Industrial and Financial Reconstruction (BIFR).

sick units have not only lost their net worth, but they have also lost capital raised from sources other than ownership.

The extent of accumulated losses of sick units in India, is about two times that of the net worth of the sick units.

The failure of the policies in controlling industrial sickness in India,