Q.What is meant by 'industrial sickness'? State any two causes of industrial sickness.

Industrial sickness describes a unit whose financial health has deteriorated to the point that it can no longer function as a going concern without corrective action. …

An industrial unit is termed 'sick' when it has suffered a continuous decline in its net worth, or has defaulted on its repayment obligations to banks/financial institutions for a sustained period, such that it can no longer sustain itself as a going concern without external corrective intervention.

Causes of industrial sickness:

1. Poor management: Weak strategic decisions, lack of professional management, or family-management disputes can erode a unit's competitiveness over time.
2. Obsolete technology: A unit that fails to modernise its plant and processes gradually loses out on cost and quality to more modern competitors.
3. Inadequate demand: Overestimating market demand at the project-appraisal stage, or a genuine subsequent fall in demand, leaves a unit with unsold capacity and stretched finances.
4. Faulty project appraisal: Projects launched with unrealistic cost or revenue assumptions, or under-capitalised at the outset, are vulnerable to sickness almost from inception.
5. Diversion of funds: Borrowed working-capital or term-loan funds diverted to other uses (including unrelated ventures) starve the original unit of the resources it needs.
6. External shocks: Sudden input-price increases, labour unrest, or loss of a key market can also push an otherwise sound unit towards sickness. …

Students often define sickness only as 'the unit is making a loss', without the fuller idea of a continuous, sustained decline in net worth or repayment capacity — a single bad year does …