UNIT -2

SICK INDUSTRY
The act defined a sick industrial unit as one that had existed for at least five years and
had incurred accumulated losses equal to or exceeding its entire net worth at the end of
any financial year.
Internal Causes for Industrial Sickness

Factors which are within the control of management are categorized under internal causes.
Some disorder arising in these internal factors becomes the cause for sickness of an industry.
Some of the internal causes are e given below :

1) Lack of Finance :
Lack of finance is one of the internal disorders which may lead to industrial sickness. It may
be caused due to insufficient funds involving uneconomical and unproductive working capital
management, improper utilization or diversion of funds, weak equity base, exclusion of
planning and budgeting, deficient use of assets and use of inappropriate costing and pricing
methods.
For example, some of the jute industries in West Bengal.

2) Bad Production Policies :

The next reason for sickness can be related to the production decisions viz. choosing
inefficient site for conducting production activities, poor maintenance of plants and
machineries, absence of quality control measures, absence of standard research and
development techniques, etc.
For example, lamp making industries are suffering from this type of sickness in India.

3) Marketing and Sickness :

The health and vigor of an industry is invariably influenced by its marketing activities. An
inappropriate marketing strategy may cause poor performance of its products and services in
market, and ultimately lead towards industrial sickness. Some of these inefficient marketing
strategies can be incorrect demand forecasting, selection of inappropriate product mix,
absence of product planning, inappropriate market research methods, poor sales promotion
techniques, etc.
4) Inappropriate Personnel Management :
Improper personnel management yet another cause for sickness of an industry. Lack of
efficient personnel management policies can be observed in the form of mismanagement of
wages and salaries of employees, absence of behavioral approach causing discontentment and
resentment among workers and employees, inefficient labour relations, etc.

5) Ineffective Corporate Management :

Another important internal cause for industrial sickness is ineffective corporate management.
If the corporate policies are inappropriate, its top management lacks integrity and the control
lacks among corporate managers and authorities, then such reasons become the major cause
for industrial sickness.

External Causes for Industrial Sickness

These are the external factors which are beyond the control of management of an industry.
Some of these external factors are as follows :

1) Personnel Constraints :
Personnel constraints such as lack of availability of skilled manpower or labour, disparity in
wages of employees and labours as compared to other industries, and the type of labour
employed/available in a region. For example, leather industry is suffering problem of
availability of skilled labours.

2) Marketing Constraints :
Marketing constraints include recession in market, liberal licensing and tax policies imposed
by the government and regulation on making bulk purchases, dynamic international market
environment which may undergo sudden changes, etc. For example, crackers and firework
industries which has been facing huge downfall in its its market demand since last year and
lot of stock has been summed up in the factory. More than 100 units India are up for sale
now, which is alarming.

3) Production Constraints :
Sickness of small scale industries also arises due to the lack of power supply, fuel and high
prices, dearth of raw material, import/export restrictions, etc. These factors are categorized as
product constraints causing industrial sickness. For example, tariff on production material of
steel, Cement, Chemical, plastic, paper, etc. remains high. This is the reason why some of
these industries fail to earn profits and bears these huge expenses leading to industrial
sickness.

4) Financial Constraints :
The last most common external cause of sickness in an industry is financial constraints. Such
constraints may arise due to any delay in disbursement of loan by government, unfavorable
investments. credit restraints policy, etc.

Remedial Measures for Industrial Sickness

The measures to overcome industrial sickness or remedies of industrial sickness are enlisted
below :

1) Effective Planning :
It is essential for every small and medium sized enterprise to conduct in-depth survey of
prevailing circumstances in small scale sector and productive programmes. Only a small
number of entrepreneurs initiate their operations based on an accurate and diligent plan.
Thus, effective planning is essential as all small entrepreneurs require a detailed project
report or an all-inclusive feasibility study to start their units. Absence of such a planning can
affect entrepreneurs with issues like inappropriate technology, under-estimation of costs,
unsuitable location, unqualified or inexpert consultancy service, etc. Hence, it is
indispensable for SMEs to launch effective action plans for their sustenance.

2) Improvement in Techniques of Production and Proper Technology :

With the advent of technological advancements, firms must attempt. to upgrade their process
of production. They must adopt the latest technology for producing goods/ services. Under
the following circumstances, government consultancy organisations and laboratories play a
crucial role. As small firms are incompetent to spend money on the latest technologies,
government should arrange practical and modern methods of production for them. If
financially possible, firms should also invest in their research and development activities.
They should always strive for constant innovation for leading the market and sustaining in
globalized business environment.

3) Training and Development :

Industries must make coordinated efforts in bestowing formal training and education to
workers involved in this sector as they are the real profitable asset of the industry. Firms
should consider the expenses incurred on training and educational activities as investments
for ensuring long-term of the growth business. Expertise and skills essential in the dynamic
business environment should be provided by the Small Industries Association. Further, in
order to compete with medium and large-scale competitors, small firms should motivate their
workers by providing motivation and offering rewards.

4) Provision of Infrastructural Facilities :

Firms require many important facilities to ensure smooth. functioning of its operations such
as finance,, water supply, power arrangement, etc. These facilities are extended by small
industries corporation. State technical consultancy organisations and State Development
Corporation. However, their support system requires more improvement. Evolution of
industrial estates has resolved this problem partly, yet more efforts are necessary to establish
more industrial estates to accommodate more small units.

5) Regular Supply of Raw Materials :

Small-scale sectors get regular supply of raw materials by Small Industries Development
Corporations and other canalizing agencies. These agencies should undertake requisite
actions for maintaining a steady, but proper supply of raw materials to small and medium
sized enterprises. Government should also take a hand on a regular basis in arranging
economical and affordable imports of raw materials. Firms on the other hand, should
maintain regular procurement of raw materials for avoiding industrial sickness.

6) Adequate Credit Arrangement :

For avoiding industrial sickness, firms and industries should arrange adequate credit for
running their business efficiently. There are many small and medium sized firms which are
incompetent to obtain proper financial support from banks and other funding agencies, they
primarily depend more on owned funds and funds borrowed from non banking sector.
However, SEBI has devised guidelines and directives for venture capital and better finance
facility is expected for this sector. Moreover, lending schemes offered by priority sector
should be made more wide-ranging and general credit with improved limit.

7) Effective Marketing Arrangements :

Every firm must emphasize on their market, brand and product development. They must
strive to persist in the market by paying exceptional significance on quality enhancement
programme. Offering products at cheaper rates and transmitting the benefits to consumers
would be advantageous in the long-run to raise their marketing performance. Marketing the
products of small units by charging a very high price from the customers enables large
companies to earn substantial profits. Thus, firms should adopt effective marketing strategies
to overcome industrial sickness.
 COMPETITION ACT 2002:
The Competition Act 2002 is an Indian law that aims to promote fair competition in the
Indian market and prevent practices that are detrimental to competition. The act replaced the
Monopolies and Restrictive Trade Practices (MRTP) Act of 1969.

The main objective of the Competition Act 2002 is to prevent anti-competitive agreements,
abuse of dominant market position, and regulate combinations (mergers and acquisitions) that
have the potential to cause adverse effects on competition in the Indian market. The act also
established the Competition Commission of India (CCI) as the regulatory body responsible
for enforcing the provisions of the act and promoting competition in the Indian market.

Some of the key provisions of the Competition Act 2002 include:

 Prohibition of anti-competitive agreements, including price-fixing, bid-rigging, and

market allocation agreements.

 Regulation of abuse of dominant market position, including the imposition of

excessive prices, predatory pricing, and denial of access to essential facilities.

 Review and regulation of mergers and acquisitions that have the potential to cause
adverse effects on competition in the Indian market.

 Establishment of the Competition Commission of India (CCI) as an independent

regulatory body responsible for enforcing the provisions of the act and promoting
competition in the Indian market.

Overall, the Competition Act 2002 plays an important role in ensuring a level playing field
for businesses in the Indian market and promoting fair competition.
The Competition Act 2002 has several advantages and benefits, including:

Promoting fair competition: The act ensures that businesses compete fairly in the market,
which leads to increased innovation, better quality products and services, and lower prices for
consumers.
Protecting consumers: The act protects consumers from anti-competitive practices such as
price-fixing, bid-rigging, and other cartel-like behaviors. This promotes a healthy market
environment, ensuring that consumers have access to a wider variety of choices and high-
quality products.

Encouraging foreign investment: By promoting a level playing field for businesses, the act
encourages foreign investors to invest in India's growing economy, leading to increased
economic growth and job creation.

Preventing the abuse of market power: The act regulates the abuse of dominant market
positions, such as imposing excessive prices, predatory pricing, and denying access to
essential facilities. This prevents monopolies from exploiting their market power, leading to a
more efficient market and better outcomes for consumers.

Promoting mergers and acquisitions that benefit consumers: The act regulates mergers and
acquisitions that may have adverse effects on competition in the market. This ensures that
such transactions are carefully scrutinized to pro tect consumers and prevent monopolies
from forming

DISINVESTMENT PROCESS
Disinvestment refers to the process of reducing or completely withdrawing government's
ownership in a public sector enterprise or company. It is also known as divestment or
privatization. The purpose of disinvestment can vary, but it is often done to achieve economic
objectives such as improving efficiency, reducing fiscal burden, promoting competition, and
encouraging private sector participation.

The mechanism of disinvestment typically involves the following steps:

Policy Formulation: The government formulates a policy outlining the objectives, methods,
and sectors for disinvestment. This policy may be driven by economic considerations, sector-
specific reforms, or fiscal requirements.

Identification of Enterprises: The government identifies the public sector enterprises or

companies that will be subject to disinvestment. These enterprises may be selected based on
criteria such as their financial performance, non-strategic nature, potential for private sector
participation, or market conditions.
Valuation: A detailed valuation of the enterprise is conducted to determine its worth. This
valuation considers factors such as assets, liabilities, market conditions, growth potential, and
competitive position. Professional valuation agencies or financial institutions are often
involved in this process.

Disinvestment Method: The government decides on the method of disinvestment based on

the objectives and prevailing market conditions. Common methods include:

a. Initial Public Offering (IPO): The government offers shares of the company to the public
through the stock market. This allows individuals and institutional investors to purchase
shares and become shareholders.

b. Strategic Sale: The government sells a significant portion or the entire stake in the
company to a strategic buyer, typically a private company or investor. The buyer may acquire
management control along with the shares.

c. Exchange-Traded Fund (ETF): The government may create an ETF comprising the
shares of multiple public sector companies and offer it for sale to investors.

d. Offer for Sale (OFS): The government sells its shares in the company through a stock
exchange platform, where investors can bid for the shares at a price determined through an
auction process.

e. Other Methods: Depending on the specific circumstances, other methods such as private
placement, buybacks, or employee stock ownership plans (ESOPs) may be utilized.

Regulatory Compliance: The government ensures compliance with legal and regulatory
requirements related to disinvestment. This may involve obtaining necessary approvals,
complying with stock exchange regulations, and adhering to disclosure norms.

Disinvestment Process: The shares of the company are offered to investors through the
chosen method. The government may set a target for the percentage of shares to be divested
and the timeline for completion.

Post-Disinvestment: After the disinvestment process, the government's ownership and

control in the enterprise are reduced or eliminated. The company may continue to operate as a
private entity, subject to the regulations and governance norms of the relevant jurisdiction.
It's important to note that the specific details and variations of the disinvestment mechanism
can vary between countries and depend on the legal and regulatory frameworks in place
PROBLEMS
While disinvestment can have several potential benefits, it is not without its challenges and
problems. Here are some common problems associated with the disinvestment process:
Political Opposition: Disinvestment decisions can face significant political opposition,
particularly if they involve popular or strategically important public sector enterprises.
Political parties, labor unions, and other stakeholders may resist disinvestment due to
concerns about job losses, loss of control, or potential negative impacts on the economy.

Valuation and Pricing: Determining the fair value of a company being divested can be
challenging. Accurate valuation is crucial to ensure that the government receives a reasonable
price for its shares and to attract investors. Incorrect valuation can lead to underpricing,
resulting in revenue loss for the government, or overpricing, which may deter investors.

Market Conditions: The success of disinvestment can be influenced by prevailing market

conditions, such as the state of the economy, investor sentiment, and market liquidity.
Unfavorable market conditions, such as a bearish stock market or sector-specific downturns,
can make it difficult to find buyers or achieve desired prices.

Asset Quality and Liabilities: Public sector enterprises may have accumulated significant
liabilities, such as debt, pension obligations, or contingent liabilities. These liabilities can
affect the attractiveness of the company to potential investors and impact the valuation
process. Additionally, poor asset quality or unresolved legal issues can complicate the
disinvestment process.

Regulatory Hurdles: Regulatory and legal complexities can pose challenges to the
disinvestment process. Compliance with various legal requirements, obtaining necessary
approvals, and addressing labor and employee-related issues can be time-consuming and add
to the overall complexity of the process.

Lack of Investor Interest: Disinvestment may not attract sufficient investor interest,
particularly if the company has a poor track record, uncertain future prospects, or operates in
a non-attractive sector. This lack of interest can result in undersubscription or limited
competition among buyers, leading to suboptimal outcomes for the government.
Economic Impact: Disinvestment can have both positive and negative economic impacts.
While it can improve efficiency and promote private sector participation, it may also lead to
job losses, particularly if there is a restructuring or downsizing of the divested company. The
impact on local communities and regional economies should be carefully considered and
managed.

Addressing these problems requires careful planning, stakeholder engagement, transparent

processes, and effective communication. Governments need to assess and mitigate the
potential risks and challenges associated with disinvestment to ensure successful outcomes.

ECONOMIC REFORMS
Economic reforms in various sectors refer to the initiatives and policies implemented by
governments to promote growth, improve efficiency, increase competitiveness, and attract
investments in specific industries or sectors. These reforms aim to create a conducive
environment for business, foster innovation, enhance productivity, and drive economic
development. Here are some examples of economic reforms in different sectors:

Financial Sector Reforms: Financial sector reforms focus on liberalizing and modernizing
the banking, insurance, and capital markets. These reforms may involve deregulation,
privatization, strengthening regulatory frameworks, promoting competition, and introducing
financial innovations. For example, allowing foreign direct investment in the banking sector,
implementing risk-based regulations, or establishing stock exchanges to attract capital.

Trade and Investment Reforms: Trade and investment reforms aim to reduce trade barriers,
encourage foreign direct investment (FDI), and promote international trade. Governments
may implement measures such as tariff reductions, simplifying customs procedures,
establishing special economic zones (SEZs), signing free trade agreements (FTAs), and
providing incentives for export-oriented industries.

Infrastructure Reforms: Infrastructure reforms focus on developing and upgrading physical

infrastructure such as transportation, energy, telecommunications, and water supply. These
reforms may involve public-private partnerships (PPPs), privatization of state-owned
infrastructure assets, streamlining regulatory processes, and attracting private investments for
infrastructure development.

Industrial Reforms: Industrial reforms aim to enhance the competitiveness and efficiency of
manufacturing and industrial sectors. This may involve reducing regulatory burden,
simplifying licensing and approval processes, providing incentives for innovation and
technology adoption, and promoting cluster-based industrial development.
Agriculture Sector Reforms: Agriculture sector reforms aim to modernize agricultural
practices, increase productivity, and improve farmer income. These reforms may involve
measures such as land reforms, providing access to credit and insurance, investment in rural
infrastructure, promoting agricultural research and development, and facilitating market
access for farmers.

Energy Sector Reforms: Energy sector reforms focus on ensuring a reliable, affordable, and
sustainable energy supply. This may involve deregulating energy markets, attracting private
investments in energy infrastructure, promoting renewable energy sources, and improving
energy efficiency.

Education and Skill Development Reforms: Education and skill development reforms aim
to enhance the quality of education and develop a skilled workforce. These reforms may
involve curriculum reforms, promoting vocational and technical education, strengthening
linkages between industry and academia, and providing incentives for research and
development.

Healthcare Sector Reforms: Healthcare sector reforms aim to improve access to quality
healthcare services, enhance healthcare infrastructure, and promote health insurance
coverage. These reforms may involve introducing health insurance schemes, encouraging
private sector participation in healthcare delivery, investing in healthcare infrastructure, and
promoting telemedicine and digital healthcare solutions.

It's important to note that the specific reforms implemented can vary between countries and
depend on their unique economic priorities, challenges, and institutional frameworks.
Reforms are often part of broader economic development strategies aimed at fostering
sustainable growth and improving living standards

Meaning of Economic System

An economic system is a mechanism with the help of which the government plans and
allocates accessible services, resources, and commodities across the country. Economic
systems manage elements of production, combining wealth, labour, physical resources, and
business people. An economic system incorporates many companies, agencies, objects,
models, and deciding procedures.

Types of Economic Systems

Capitalist economy: In a capitalist system, the products manufactured are divided among
people, not according to what they want but on the basis of purchasing power, which is the
ability to buy products and services. This means an individual needs to have the money with
him to buy the goods and services. The low-cost housing for the underprivileged is much
required but will not include demand in the market because the needy do not have the buying
power to back the demand. Therefore, the commodities will not be manufactured and
provided as per market forces.

Socialist economy: This economy system acknowledges the three inquiries in a different
way. In a socialist society, the government determines what products are to be manufactured
in accordance with the requirements of the society. It is believed that the government
understands what is appropriate for the citizens of the country. Therefore, the passions of
individual buyers are not given much attention. The government concludes how products are
to be created and how the product should be disposed of. In principle, sharing under
socialism is assumed to be based on what an individual needs and not what they can buy. A
socialist system does not have a separate estate because everything is controlled by the
government.

Mixed economy: Mixed systems have characteristics of both the command and the market
economic system. For this purpose, the mixed economic systems are also known as dual
economic systems. However, there is no sincere method to determine a mixed system.
Sometimes, the word represents a market system beneath the strict administrative control in
certain sections of the economy.

Parameters Capitalist economy Socialist economy Mixed economy

Ownership of Private ownership Public ownership Both public and private

property ownerships

Price Prices are determined Prices are Prices are determined by

determination by the market forces determined by the the central planning
of demand and central planning authority, and demand and
supply. authority. supply.

Motive of Profit motive Social welfare Profit motive in the private

production sector and welfare motive
in the public sector

Role of No role Complete role Full role in the public

government sector and limited role in
the private sector

Competition Exists No competition Exists only in the private

 sector

Distribution of Very unequal Quite equal Considerable inequalities

income exist

STRUCTURE OF INDIAN ECONOMY:

Primary Sector

 In Primary sector of economy, activities are undertaken by directly using natural

resources. Agriculture, Mining, Fishing, Forestry, Dairy etc. are some examples of this
sector.
 It is called so because it forms the base for all other products. Since most of the
natural products we get are from agriculture, dairy, forestry, fishing, it is also called
Agriculture and allied sector.
 People engaged in primary activities are called red-collar workers due to the outdoor
nature of their work.
Secondary Sector

 It includes the industries where finished products are made from natural materials
produced in the primary sector. Industrial production, cotton fabric, sugar cane
production etc. activities comes under this sector.
 Hence its the part of a country's economy that manufactures goods, rather than
producing raw materials
 Since this sector is associated with different kinds of industries, it is also
called industrial sector.
 People engaged in secondary activities are called blue collar workers.
 Examples of manufacturing sector:

o Small workshops producing pots, artisan production.

 o Mills producing textiles,
o Factories producing steel, chemicals, plastic, car.
o Food production such as brewing plants, and food processing.
o Oil refinery.
Core Industries

Eight Core Industries are Electricity, steel, refinery products, crude oil, coal, cement, natural
gas and fertilizers. The Index of Eight Core Industries is a monthly production index, which
is also considered as a lead indicator of the monthly industrial performance. The Index of
Eight Core Industries is compiled based on the monthly production information received
from the Source Agencies.
Tertiary Sector/Service Sector

 This sector’s activities help in the development of the primary and secondary sectors.
By itself, economic activities in tertiary sector do not produce a goods but they are an
aid or a support for the production.
 Goods transported by trucks or trains, banking, insurance, finance etc. come under the
sector. It provides the value addition to a product same as secondary sector.
 This sector jobs are called white collar jobs.
Organised Sector

 In this sector, employment terms are fixed and regular, and the employees get assured
work and social security.
 It can also be defined as a sector, which is registered with the government and a number
of acts apply to the enterprises. Schools and hospitals are covered under the organised
sector.
 Workers in the organised sector enjoy security of employment. They are expected to
work only a fixed number of hours. If they work more, they have to be paid overtime by
the employer.
Unorganised Sector

 An unorganised worker is a home-based worker or a self-employed worker or a wage

worker in the unorganized sector and includes a worker in the organized sector who is
not covered by any of the Acts pertaining to welfare Schemes as mentioned in
Schedule-II of Unorganized Workers Social Security Act, 2008.
 In this sector wage-paid labour is largely non-unionised due to casual and seasonal
nature of employment and scattered location of enterprises.
 The sector is marked by low incomes, unstable and irregular employment, and lack of
protection either from legislation or trade unions.
 The unorganised sector uses mainly labour intensive and indigenous technology. The
workers in unorganised sector, are so scattered that the implementation of the
Legislation is very inadequate and ineffective. There are hardly any unions in this sector
to act as watch-dogs.
 But the contributions made by the unorganised sector to the national income, is very
substantial as compared to that of the organised sector. It adds more than 60% to the
national income while the contribution of the organised sector is almost half of that
depending on the industry.
The Public Sector

 In the sector, government owns most of the assets and it is the part of the economy
concerned with providing various governmental services.
 The purpose of the public sector is not just to earn profits. Governments raise money
through taxes and other ways to meet expenses on the services rendered by it
The Private Sector

 In the private sector, ownership of assets and delivery of services is in the hands of
private individuals or companies.
 It is sometimes referred as the citizen sector, which is run by private individuals or
groups, usually as a means of enterprise for profit, and is not controlled but regulate by
the State.
 Activities in the private sector are guided by the motive to earn profits. To get such
services we have to pay money to these individuals and companies.