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Sick advantage
At the Arvind Mills annual general meeting held at Ahmedabad on Tuesday, managing director Sanjay Lalbhai raised an important point. He blamed the banks and financial institutions for creating a glut in denim capacity in the country by financing unviable units. Many of these units, he said, are still producing, although they have defaulted on their loans. Lalbhai's reference obviously is to the fact that being sick can often be an advantage to a company. Not being required to pay interest, the sick company can often sell at prices lower than its healthier competitor. In fact, the sick unit often aims at recovering only its variable cost, knowing that benevolent patrons such as the BIFR would do their utmost to bail it out. Writing off overdue interest, concessional rates of interest and other sops extended in a BIFR package often enable the sick unit to continue to outprice healthier units not favoured with such concessions. The upshot is that even the healthy units turn sick. This is a process not limited tothe textile sector, but extends to the country's entire manufacturing spectrum.Scrapping the BIFR would be the first step towards correcting this anomaly. A bankruptcy law should then be formulated which ensures a company's restructuring within a short timeframe, say six months. The aim of the process should be to ensure that while potentially viable companies are given a second chance, they are at the same time not allowed to pursue strategies which perversely distort the playing field in their favour. Much has been talked of an exit policy for workers, and so-called voluntary retirement schemes have already led to a restructuring of the workforce. Far more important is the need for an exit policy for industry, whereby sick industries are not allowed to drag down their healthier competitors. Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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