CAUSES FOR INDUSTRIAL SICKNESS
(i) Weak Capital Structure
As the promoters of small and medium scale enterprises are persons with poor means, these units suffer from a weak capital structure. A greater proportion of debt and a lower proportion of own funds are usually employed. Entrance of new persons with inadequate managerial and technical capabilities, contribute substantially to the sickness of many units. Many SME units have to depend on local markets.
(ii) Dependence on Loan Funds
Financial management and control is paid scant attention, resulting into low productivity of SMEs. Dependence of small units upon large units also causes sickness due to forward and backward linkages. Generally the small and medium scale units are set up with a low amount of own funds and depending to a greater extent on loanable funds.
(iii) Production constraints
Shortage of essential inputs like rawmaterial, power, fuel or other infrastructure inputs are production constraints. Erratic and unproductive trends in quality and price of material and insufficient transport facilities, inadequate material control are other constraints.
(iv) Marketing constraints
The liberal policy of the government in an industry often leads to the creation of excess capacity, which in turn may ultimately lead to glut in the market bringing down prices to uneconomic levels. The changes in the fiscal policies of the government i.e increase in excise, octroi, sales tax etc are also constraints
(v) Change in the Policy of buyers
An export oriented industry which cannot keep pace with the changes in the international market is likely to face severe crisis on that score. The most of the SME units depend on the larger units for their markets as ancillaries or vendors or subcontractors and as such any change in the policy of the buyer can cause sickness to such units. (vi) Delay in sanctioning Loans
The stringent terms and conditions of granting of credit by the commercial banks and other financial institutions are hindrances. Delay in sanctioning of actual disbursement of the loan amount and improper schedule of payment of installments and liquidation of the debt without taking adequate care of the gestation period. Working capital management and gross absence of financial sense on the part of the entrepreneurs and other financial constraints cause industrial sickness.
(i) Lack of Human Resources
Strained labour relations and inappropriate wage and salary administration, lack of sound behavioral approach are the reasons of shortage of manpower. The managerial short sightedness towards problems of human resources in the industrial units is another factor . Absence of a satisfactory and rational manpower planning, management and administration and improper project formulation, planning and appraisal make the units sick.