Which options from the following combine to suggest that a small-scale industrial unit is sick?

A. Borrowal Accounts of the unit remain substandard
B. Erosion of the net worth due to accumulated losses
C. The unit has been in commercial production for at least two years
D. Lack of commitment from the management part
E. Competitors are flourishing

Choose the correct answer from the options given below:

Correct option is D

A small-scale industrial unit is considered sick when it faces financial, operational, or managerial difficulties that make it difficult to sustain operations. The following factors contribute to identifying a unit as sick:

1. Borrowal Accounts of the Unit Remain Substandard (A)

   • If a unit's borrowal accounts (loans and credits from banks) remain substandard for an extended period, it indicates financial distress.

   • Substandard loans mean that the unit is unable to repay its debts on time, affecting its creditworthiness.

2. Erosion of the Net Worth Due to Accumulated Losses (B)

   • A company's net worth is the value of its total assets minus liabilities. If this net worth erodes due to continuous losses, it indicates financial instability.

   • Accumulated losses mean that the company has been unable to generate profits over time, making it financially unviable.

3. Lack of Commitment from the Management (D)

   • If management is not committed to the unit’s growth, it may result in poor strategic decisions, lack of innovation, and inefficiencies.

   • Poor management practices, corruption, or lack of leadership often lead to operational and financial decline.

Thus, A, B, and D together suggest that a small-scale industrial unit is sick.

Information Booster:

1. Definition of a Sick Unit

   • As per the Reserve Bank of India (RBI)and various industrial policies, a small-scale unit is considered sick if it has incurred continuous losses for the past two years and its net worth is negative.

   • A unit is also considered sick if it is unable to meet its debt obligations and maintain working capital.

2. Indicators of Sickness in Small-Scale Industries

   • High debt burden with non-performing loans.

   • Continuous financial losses leading to erosion of net worth.

   • Poor managerial decisions and lack of leadership.

   • Inability to compete due to outdated technology or lack of innovation.

Additional Knowledge:

1. Option (C) - The unit has been in commercial production for at least two years

   • Just being in production for two years does not indicate sickness. A unit may be running successfully even if it is young.

   • A new business may have initial struggles, but this alone is not a criterion for sickness.

2. Option (E) - Competitors are Flourishing

   • The success of competitors does not automatically indicate that a unit is sick.

   • A company can struggle due to internal mismanagement, financial distress, or poor product quality, independent of competitors’ success.

   • Many industries see some firms performing well while others struggle.​