Revision summary
A sick unit cannot service debt or stay a going concern; NPAs and unpaid wages follow. Causes: demand collapse, thin capital, weak management, power and logistics, and slow exit. Willful default exists, but not every failure is fraud. IBC 2016 is the time-bound revive-or-liquidate path after the SICA/BIFR delay. MSME payment discipline, tech upgrade, and worker security beat perpetual nursing.
Model answer
Introduction
An industrial unit is ‘sick’ when it fails to generate enough surplus to service debt and stay a going concern—losses erode net worth, banks classify the account as a non-performing asset, and workers face unpaid wages. India has seen this in textiles, engineering, sugar, and many MSMEs, not only in a few large public-sector plants.
Body
Causes
- Demand and competition: obsolete product mix, import surge after liberalisation, and cheap substitutes leave capacity idle.
- Finance: under-capitalisation, diversion of working capital, delayed payments from government buyers, and high-cost debt turn a cash-flow gap into insolvency.
- Management: family disputes, weak cost control, and reluctance to professionalise keep firms from restructuring until too late.
- Inputs and infrastructure: erratic power, logistics cost, and raw-material price spikes hit continuous-process plants.
- Labour and regulation: over-manning without a viable VRS, delayed closure permissions (before IBC), and inspector delays raised the cost of exit, so capital stayed trapped in dead units.
- External shocks: monsoon-linked rural demand, global commodity cycles, and policy reversal (tax, tariff) can push a thin-margin unit over the edge.
- Willful default and fraud exist, but treating every sick unit as a criminal hides genuine business failure.
Suggestions
- Early warning: banks and the Ministry of Corporate Affairs should use cash-flow and GST data to force a resolution before net worth is fully eroded.
- Insolvency and Bankruptcy Code (2016) as the time-bound path: revive if the enterprise value is positive, else liquidate and free the land, licence, and labour.
- Recapitalise only where a professional turnaround plan exists; do not refinance a dead product line as a political plant.
- MSME delayed-payment discipline (Samadhaan), factoring, and timely GST refunds protect working capital.
- Technology upgradation (CLCSS-type), cluster common-facility centres, and power reliability cut the cost stack.
- Labour: skilling and social security for workers of closed units, not a ban on all exit, which only multiplies zombie firms.
- SICA/BIFR-era delay taught that indefinite nursing without a hard deadline is itself a cause of sickness.
Flow diagram
flowchart TD C[Demand finance management infra exit delay] --> S[Industrial sickness] S --> I[IBC early warning] S --> M[MSME payments tech power] S --> L[Worker social security not zombie firms] I --> R[Revive or liquidate] M --> R L --> R
Conclusion
Industrial sickness in India is a mix of market, finance, management, infrastructure, and delayed exit. The cure is early detection, IBC-style time-bound revival or closure, honest working-capital rails for MSMEs, and upgrade of technology and power—not perpetual subsidy to a unit that no longer has a product.
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