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Consequences of Industrial Sickness

The phenomenon of industrial sickness not only tends to aggravate the problem of unemployment but also renders infectious capital investment and generally creates an adverse climate for further industrial growth. While in advances countries where there are adequate social security benefits, this is accepted as a normal feature of industrial scene. But such sickness ahs much more serious economic consequences in a country where unemployment is a major problem and financial resources are scarce.

Some of the consequences of industrial sickness are discussed below:

(i)    Losses to Banks and other Financial Institutions. Banks and other financial institutions lend substantial funds to industrial units. When these units turn sick, they cause considerable losses to the lending institutions which had granted loans  to them. Further, the future lending capacity of these institutions also get adversely affected because of the locked up funds in the sick industrial units.

(ii)    Unemployment. Another serious consequence of industrial sickness has been loss of employment to workers associated with sick units. This aggravates the most serious socio-economic problem of unemployment in a labour surplus economy like India.

(iii)    Industrial Unrest. A from rendering a number of workers unemployed, a sick unit may also lead to initial unrest. The trade unions (of both sick and non-sick units) may resort to strikes opposing retrenchment of labour of the closed units and as such disturb industrial peace in the country.

(iv)    Wastage of Resources. If a unit in which substantial investment has been made in plant and machinery turns sick, it recourse in wastage of scarce resources. The closure of a unit thus not only results in decline in production in the economy but also blocking of valuable savings and capital investment which, otherwise, should have yielded profitable returns to the economy.

(v)    Revenuer Loss to the Government. The Government gets substantial revenues from industrial units by way of various levies. but when a number of units become sick, the receipts of revenue are greatly reduced.

(vi)    Adverse Impact on Related Units. An industrial unit is normally linked with a number of other industrial units though backward linkages and forward linkages. Therefore, sickness in one unit is likely to adversely affect the other related units. For example, if a iron and steel unit gets sick, it will affect the units that supply inputs to it and which take its output.

(vii)    Adverse Impact on Prospective Entrepreneurs and Investors. The closure of a large number of sick units generally affects the psychology of investors. They may feel demodulated to invest. The whole industrial development of the economy.

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