Sick Industrial Units in India
A small scale industrial (SSI) unit is one in which investment on plant and machinery is limited to a maximum of Rs. 30 million.
A 'tiny' industrial unit is one in which investment in plant and machinery is limited to a maximum of Rs. 2.5 million.
Industrial units proven to be unable to financially sustain themselves are generally called "sick units" in India. A merely financially-troubled company DOES NOT automatically become a sick unit: it has to be designated as such by the federal government. The Board for Industrial and Financial Reconstruction (BIFR) is assigned with the responsibility of hearing cases that apply for being declared sick and deciding whether or not the unit deserves to be termed "sick." The BIFR is also the authority that must approve takeover of a sick unit. The ultimate recourse in tackling a sick unit is its liquidation by liquidators based in different parts of the country, but revival possibilities are many to avert liquidation.
With the Indian economy opening up progressively since 1991, foreign investors may find take-over of sick units a better alternative to building a unit from scratch. But they have to obtain the approval of the BIFR.
Not all sick units are beyond redemption. A genuine lack of demand for products is RARELY the reason for an industrial unit to go sick in India. Most of them go sick due to inefficient management, over-staffing or obsolete production equipment and techniques. A few cases could arise from dishonesty of the company's promoters who deliberately let their unit go sick after they have transferred funds to their other companies. Some others may find it attractive to approach the BIFR in order to delay payments to their creditors. But such cases of dishonesty are few and far between. Most cases are genuine.
As of March 1995, according to a report in Business Line newspaper, there were more than 271,000 sick industrial units in India with outstanding bank credit of Rs. 13,739 crores (1 crore = 10 million). Of these, 99 per cent companies belonged to the small- scale industry.
These sick companies accounted for 6.7 per cent of the total bank credit and 13.3 per cent of the total bank advances to industry. However, the ratios were significantly lower than in the preceding two years, it adds.
share of the small-scale industry in the list of sick units was at
more than 99 per cent. This was despite a positive growth rate of
the small-scale sector during the year. Let this statistics however
not cloud the fact that the growth of the small-scale sector in India
is usually above the growth rates achieved by the industrial sector
as a whole.
Official liquidators of sick units in India