Slowdown sickness

As industrial sickness is becoming more acute during the current economic slowdown, a number of industries, including the Indian Airlines, declared themselves sick last month. They have been registered under the Board for Industrial Finance and Reconstruction (BIFR), a quasi-judicial tribunal whose powers are governed by the Sick Industrial Companies (Special Provisions) Act. The government has now decided to replace the BIFR by the National Company Law Tribunal, the main purpose of which is to make the liquidation of sick companies easier. For industrial growth to pick up, it is important that the sick industries are quickly wound up and public money is not spent for their revival. Such a step will be of some benefit to the workers, creditors and investors who can be paid off.

The average waiting period for them to be wound up under BIFR was 10 years. Now the process would have to be over in two years. Also, the definition of bankruptcy would be made much wider. Companies whose net worth erosion has been only 50 per cent or which has defaulted in payment of over Rs 1 lakh would be admitted on a voluntary basis to make their chances of revival easier. All this is commendable. What is rather odd is the cess which the government wants to impose on healthy companies with a paid up capital of Rs 10 lakh to create a revolving fund of Rs 75 crore for the revival of sick companies. Why should a successful company deign to rescue a sick one even though the cess will not exceed 0.1 per cent of its total turnover?

It is important to have a quick exit route for the sick public sector companies also. Otherwise, as Disinvestment Minister Arun Shourie has pointed out, the process of disinvestment cannot be accelerated.

Keeping the sick industries alive is a big burden on the exchequer, leading to a low rate of public investment in areas critical for the economy like infrastructure and the social sector. The main question is whether the sick PSUs should also come under the new tribunal.

Editorial from the Hindustan Times.