Industrial sickness refers to the condition of an industrial company that is financially weak and unable to operate effectively or profitably over a sustained period. It typically involves continuous losses, erosion of net worth, and an imbalance in the financial structure, such as a poor debt-to- equity ratio. A sick industrial company often depends on external funding for survival and cannot generate sufficient internal revenue to cover its expenses

Formal Definition

Under Indian law, specifically the Sick Industrial Companies (Special Provisions) Act, 1985, an industrial company is classified as "sick" if it has been registered for at least five years and has accumulated losses at the end of any financial year that equal or exceed its entire net worth

Symptoms of Industrial Sickness

• Continuous financial losses and erosion of net worth
• Decline in sales and production capacity
• Frequent cash shortages and inability to meet financial obligations (e.g., payment of wages, taxes, interest)
• Overdependence on external credit and funds
• Deterioration in financial ratios (e.g., debt-equity ratio, current ratio)
• Delay in audit and irregular maintenance of accounts
• Decline in technological innovation and management inefficiencies

Causes of Industrial Sickness

Internal Causes:

• Poor planning and project execution
• Financial mismanagement and constraints
• Labour and management conflicts
• Use of outdated or inefficient machinery
• Entrepreneurial incompetence and lack of skilled labor

External Causes:

• Economic recession and decline in market demand
• High input costs and erratic supply of raw materials
• Frequent changes in government policies affecting industrial operations
• Infrastructure bottlenecks such as power shortages and transport issues
• Increased competition and credit constraints

Impact

Industrial sickness leads to wastage of physical, financial, and human resources, adversely affecting economic growth. It results in job losses, reduced industrial output, and increased burden on financial institutions and the government

. In summary, industrial sickness is a state of prolonged financial and operational distress in an industrial unit, marked by losses, erosion of net worth, and inability to sustain operations without external support