Industrial Sickness in the Small Scale Industrial Sector of India with Special Reference to Financial Gap

Abstract

The major thrust of the present paper is to examine the estimates of the working capital gap in the small scale industrial sector of India during the period from 1981-82 to 2006-07, that is, the pre-reform period (1981-1990) and the post-reform period (1991-2006).The paper also analyzes the cause and effect relationship between working capital gap (WCG) and sickness in the small scale industrial sector of India by using the Granger causality test. The two variable vector auto regressive (VAR) model was utilized to check the existence of Granger causality between the variables of working capital gap and number of sick units (SICK) under the small scale industrial sector. In India, the working capital gap has significantly caused sickness in the small scale industrial sector, and the government of India framed an elaborate financial infrastructure comprising of banking and non-banking financial institutions to meet the credit requirements of the small scale industrial sector, but over the years, the organizational framework has failed to render the desired financial services for the small scale industrial sector for it to meet the challenges of globalization.