Blame it on liberalisation or the ongoing recession, but the fact remains that the list of companies turning sick has been growing every year. In the last three years, as many as 223 companies fell into the BIFR net after having eroded over 50 per cent of their peak net worth in the last three years.
Small companies with sales turnovers of Rs 100 crore or less were the first victims of liberalisation. A study by the Business Standard Research Bureau shows that over 50 per cent of the net worth of 175 small companies had eroded in the last three years.
Medium and large enterprises were less severely hit. More than half the net worth of 43 medium-sized companies (with sales turnover of Rs 100-500 crore) and five big companies (with sales of over Rs 500 crore) eroded during the period.
In 1998-99, the net worth of 71 companies eroded by over 50 per cent following a slump in demand. In 1999-2000, the list increased with the addition of another 60 companies. In 2000-2001, it increased further by 92, taking the tally to 223 in three years.
The net worth of the 223 companies was still satisfactory at Rs 9,947 crore in 1998-99 after adjusting for cumulative losses. But as the net losses of these corporates increased by Rs 4,063 crore in 1999-2000, their aggregate net worth dropped to Rs 5,884 crore. An year later, their net worth was almost wiped out as their net losses increased by a whopping Rs 5,080 crore in 2000-01.
As expected, liberalisation has played a major role in bringing about the sad state some sectors are in. The steep decline in import duties made business in sectors such as auto ancillaries (17 companies), electronic goods (13), steel (14), textiles (40), textile machinery and pharmaceuticals (11) unviable.
To be sure, this was not the only reason for the corporate debacle. The absence of government spending on capital-intensive projects created a demand recession in the core sector. This in turn had an impact on industries like the cement, engineering, steel, automobiles and capital goods industries and many companies in these areas queued up before BIFR.
The textiles industry, which was creating job opportunities for unskilled labour, was hit hard first by modernisation and then by liberalisation. Textile firms that failed to modernise became uncompetitive and eventually sick. Indeed, 40 such companies
