In 1993, the minister of finance, Manmohan Singh, commissioned a committee  on Industrial Sickness and Corporate Restructuring, with Omkar Goswami of the Indian Statistical Institute as the chair, in the wake of the economic reforms initiated in 1991. Members included T. C. A. Anant (Delhi School of Economics); Naval Bhati (Advocate); Hanumantha Charya (National Council of Applied Economic Research); Tamal Datta Chaudhuri (Industrial Reconstruction Bank of India); Subhashis Gangopadhyay (Indian Statistical Institute); and Kirti Uppal (Advocate).

Industrial sickness, which was the persistence of loss-making and inefficient industrial firms, was a major problem. The committee analyzed the inadequacies in the legal, financial, and operational frameworks designed to combat industrial sickness, which had become pervasive across both the public and private sectors, thereby constraining financial resources and impeding the new reforms. The committee identified key barriers to effective restructuring, such as the slow and biased processes of the Board for Industrial and Financial Reconstruction (BIFR), inadequate financial practices including poor project appraisal and provisioning, rigid labor laws, and complex land and taxation policies. The Sick Industrial Companies (Special Provisions) Act (SICA) of 1985 was found particularly problematic because of its narrow definition of sickness, which meant companies were identified too late for effective intervention, thus prolonging financial distress. Only 5 percent of the firms under the BIFR’s purview were successfully rehabilitated, and the process often failed to use the threat of winding up to enforce quicker decisions. The committee strongly believed that these barriers served no economic purpose and were ultimately anti-labor, as they hindered long-term employment creation by eliminating growth opportunities.

The committee found that while the number of sick large and medium-scale industrial units grew modestly at 4.8 percent annually from 1982 to 1989, the credit locked in these units expanded at a compound annual rate of 17.65 percent. By 1989, these units accounted for 75 percent of the total outstanding credit locked in sick industrial units, with significant concentrations in industries such as textiles, engineering, and jute. In FY 1989/90, there were 98 loss-making central-government companies, which had cumulative losses of Rs. 1,959 crores. The committee criticized the BIFR’s preference for rehabilitation over winding up, arguing that rehabilitation delayed necessary decisions and allowed unviable firms to continue draining public funds. The committee recommended broadening the definition of sickness to include companies that had defaulted on repayments for 180 days or more, replacing the criterion of negative net worth.

The committee recognized that its proposed reforms needed to be packaged with other policy changes, and it drew on insights from other committees such as the Bajaj Committee and the Narasimham Committee. It proposed enforcing a strict 150-day timeline for companies to present viable restructuring plans, after which they would be referred to recovery tribunals or wound up if no solution was found. To facilitate mergers and acquisitions, it recommended removing legal and tax barriers, particularly high stamp duties in states with high rates of industrial sickness, such as Maharashtra and West Bengal. Amendments to the Companies Act were suggested to empower secured creditors to enforce changes in management or board composition in cases of repeated defaults. Additionally, the committee recommended revising land laws, including the Urban Land Ceiling Act, to enable the sale of land held by sick companies, thereby generating funds for debt repayment and restructuring. It also recommended having SICA override the Foreign Exchange Regulation Act of 1973 FERA to attract foreign investments.

The committee emphasized reforming legal and regulatory frameworks to address industrial sickness. Its recommendations aimed to streamline processes, broaden the definition of sickness, and free resources to support the rehabilitation of viable firms and economic growth.