Describe the Features of Government Policy in relation to Industrial Sickness.
The Government policy for sick industrial units aims at revival, reconstruction and rehabilitation of sick or potentially sick units. In 1978, government announced the responsibility for revival of sick units as a collective responsibility of Central and State Government, RBI, financial institutions, concerned management and nodal agency appointed specifically to serve the purpose. Under the provisions of Industrial (Development and Regulation) Act, 1971, the Central Government took over the management and control of several sick textile mills.
In April 1968, the National Textile Corporation was set-up to manage the affairs of sick mills taken over the government. In 1985, Government formulated a comprehensive policy for enhancement of textile, under which IDBI (Industrial Development Bank of India) was appointed as the nodal agency to identify viable sick units, investigate the causes of sickness and design and manage packages for their rehabilitation.
The Textile Modernization Fund was set-up in August 1986 to take up the modernization programme for sick textile units. In November 1986, Jute Modernization Fund was set-up under IFCI (Industrial Finance Corporation of India). In 1971, the Government of India constituted Industrial Reconstruction Corporation of India (ICRI) to provide financial aid, technical know how, managerial assistance, banking and consultancy services to sick units.
In March 1985 IRCI was reconstituted into a statutory corporation Industrial Development Bank of India (IDBI), as principle credit and reconstruction agency for revival of sick industrial units. At the same time, Board for Industrial Finance and Reconstruction (BIFR) provided for Sick Industrial Corporation (Special Provisions) Act, 1985 was also set-up.
The organization could obtain loans from government or foreign loans with Government guarantee and was vested with power to take over the management and control of sick industrial units. It could sell of sick units as running concern, or consider sick units for suitable merger or reconstruction. The government also introduced several schemes for revival of sick industrial units like soft loan scheme, money margin scheme and merger scheme.
Under the soft ban scheme, sick industrial units were provided loans at concessional rates (of interest) for plant modernization, replacement, renovation (old machinery in use for more than 10 years) and up-gradation. The scheme covered cotton textiles, jute, sugar and specific engineering industries. The task of operating scheme was entrusted primarily to IDBI, with participation of other financial institutions which included ICICI and IFCI. Under the money margin scheme, sick industrial units were granted margin money, which could be used for securing funds from lending institutions for revival process.
The merger scheme was introduced in 1977 with an objective of encouraging merger of sick industrial units with healthy. Under the scheme, healthy units absorbing sick units could set off the depreciation and accumulated losses against their tax liabilities. In October 1981, government introduced guidelines for various financial institutions for dealing with the problem of industrial sickness. These guidelines were later modified in February 1982. The main features of these guidelines are:
The administrative ministries under the government were entitled the responsibility of prevention and rehabilitation of Units for industrial sectors Within their respective charge.
Financial institutions were asked to take timely action to prevent incipient sickness. This involves continuous monitoring and investigation into causes of sickness.
If revival of unit does not seems, to be feasible, the outstanding dues of banks and financial institutions should be dealt in according with normal banking norms and procedures. The matter must first report to the government before any such step is taken, to enable government consider other alternatives for revival or nationalization.
If government consider a unit for nationalization, its management must be taken over for a period of six months to study various aspects like restructuring, merger, operational feasibility etc.