Page 212 - DMGT310_ENTREPRENEURSHIP_AND_SMALL_BUSINESS_MANAGEMENT

Unit 14: Sickness in Small Business Enterprises

14.1 Status of Sickness of SSI’s in India Notes

Sickness in man is gradual process and does not develop suddenly. Similar is the case with
industrial units. Therefore, in common parlance, a sick industry is one which is not healthy and
a healthy unit is one which earns a reasonable return on capital employed and builds up reserves
after providing reasonable depreciation.
A sick industrial unit may be defined as one where it fails to generate surplus on a continuous
basis and depends upon frequent infusion of external funds for its survival.

According Reserve Bank of India (RBI): “A small-scale unit should be considered as sick if it has
at the end of any accounting year, accumulated losses equal to or exceeding 50% of its peak net
worth in the immediately preceding 5 accounting years”.

The Sick Industrial Companies Act, 1985 identifies sickness in terms of cash losses for two
consecutive financial years and accumulated losses equaling or exceeding the net worth of the
company at the end of the second financial year.
Sickness, in industry therefore, indicates more or less a perfect positive correlation with
profitability, liquidity and solvency. The reasons of industrial sickness can be either internal or
external.

Notes Industrial sickness in the small scale industries is an area of great concern nowadays.
With an ever increasing population of the state and less scope for getting jobs in public
sector, these small scale industries are the only hope of providing a source of livelihood to
the local populace. In these present days of down-sizing and right-sizing in government
jobs, a proper study of industrial sickness and finding its measures to stop it will be the
only means of empowering the people for economic development.

Small-scale industries (SSIs) continue to play a significant role in industrial activity. The share of
SSIs in the gross industrial value added in the economy is around 40 per cent. About 44 per cent
of total manufactured exports are directly accounted for by the SSI sector.

Did u know? It has been estimated that a million rupees of investment on fixed assets in
the small-scale sector produces 4.62 million worth of goods or services with an approximate
value addition of ten percentage points.

The small-scale sector has grown rapidly over the years. The growth rates during the various
plan periods have been very impressive. The number of small-scale units has increased from an
estimated 0.87 million units in the year 1980-81 to over 3 million in the year 2000.

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Caution When the performance of this sector is viewed against the growth in the
manufacturing and the industry sector as a whole, it instills confidence in the resilience of
the small-scale sector.
SSI sector in India creates the largest employment opportunities for the Indian populace, next
only to agriculture. It has been estimated that 100,000 rupees of investment in fixed assets in the
small-scale sector generates employment for four persons.

SSI sector plays a major role in India’s present export performance. 45-50% of Indian exports are
contributed by the SSI sector. Direct exports from the SSI Sector account for nearly 35% of total
exports.

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