Contribution of IBC in India’s economic development

• Follow

The Insolvency and Bankruptcy Code (IBC) has been a game-changer for India’s economic development in several significant ways:

1. Faster Resolution of Insolvency Cases: Before the IBC, insolvency cases in India were subject to prolonged and uncertain legal proceedings. The IBC introduced a time-bound resolution process, mandating that insolvency cases be resolved within a specific timeframe. This has led to faster resolution of distressed assets, enabling creditors to recover their dues more efficiently.

2. Improved Credit Culture: The IBC has brought about a shift in the credit culture in India. With a more effective resolution mechanism in place, creditors are more confident in extending credit, knowing that they have a streamlined process to deal with defaulting borrowers. This has improved access to credit for businesses, especially small and medium enterprises (SMEs).

3. Increased Investor Confidence: The IBC has enhanced investor confidence in India’s business environment. It has provided a clear and robust framework for investors, both domestic and foreign, to participate in the insolvency resolution process and acquire stressed assets. This has led to increased foreign direct investment and strengthened the overall investment climate in the country.

4. Stressed Asset Management: The IBC has facilitated the identification and resolution of stressed assets in a systematic manner. This has allowed banks and financial institutions to clean up their balance sheets, improving their financial health and enabling them to focus on lending to productive sectors of the economy.

5. Business Revival and Job Preservation: The IBC emphasizes resolution over liquidation, providing distressed businesses with an opportunity to revive and continue their operations. Successful resolution under the IBC has preserved jobs and ensured the continuation of businesses that might have otherwise faced liquidation.

6. Enhanced Ease of Doing Business: The IBC has significantly improved India’s ranking in the Ease of Doing Business index. Its effective implementation has streamlined the insolvency resolution process, reducing the time and cost involved in dealing with distressed assets.

7. Formalizing Informal Sector: The IBC has also had a positive impact on India’s informal economy. Many small businesses that were previously hesitant to borrow from formal sources due to the fear of protracted legal battles now have confidence in accessing credit, as the IBC provides a timely and structured resolution mechanism.

8. Corporate Governance and Accountability: The IBC emphasizes corporate governance and accountability. It encourages businesses to adopt better financial practices and management, reducing the chances of insolvency in the first place.

In summary, the Insolvency and Bankruptcy Code has played a significant role in transforming India’s insolvency resolution landscape. Its impact on the economy can be seen in improved credit culture, increased investor confidence, and the revival of distressed businesses. By facilitating efficient debt resolution and fostering a creditor-friendly environment, the IBC has contributed to India’s economic growth and development.

Author is founder of AU Corporate Advisory and Legal Services – a corporate advisory and litigation service-providing firm. Views are personal.