Financial performance and sickness in Indian small scale industrial sector

This paper is an endeavour to analyse the financial performance of Indian small scale industrial sector over the period 1973–74 to 2004–05 using the methodology suggested by Nayak committee (1992). The magnitude of sickness in Indian small scale industrial sector has also been discussed in the paper. The analysis of growth rate of working capital gap (WCG) over the period 1973–74 to 2004–05 reveals that it has been rising at statistically significant rate of 7.99 per cent per annum. The comparison of growth rates of WCG over the two sub periods, namely, pre-liberalisation and post-liberalisation period shows that the growth rate of WCG accelerated from 5.55 per cent during the period 1973–74 to 1990–91 to 9.62 per cent in the period 1991–92 to 2004–05. During the post-liberalisation period, the gap of working capital has been observed to be rising at a faster rate relative to the pre-liberalisation period. An application of Granger causality analysis proved that there exists unidirectional causality from working capital gap to sickness, thereby showing that working capital gap is a significant driver of sickness in Indian small scale industrial sector.