Insolvency and Bankruptcy Code (IBC 2016)

Source: The Hindu

Syllabus: Gs3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment

Background: The Prime Minister mentioned that Insolvency and Bankruptcy Code (IBC 2016) would help aid India’s path to self-reliance.

What are the issues hindering investments in India?

• Backlog in court cases: nearly four crore matters pending final judgment.
• The enforceability of contracts: On an average, it takes 1,445 days for a contract to be enforced, and that too at a cost of nearly 31% of the claim value.
• Criminal penalties: imprisonment for minor offences act as major deterrents for investors.

What is the importance  of IBC in promoting investment climate in India?

• Replaced the inefficient bankruptcy law regime.
• It has transformed insolvency resolution in India by streamlining insolvency processes in a sustainable, efficient, and value retaining manner.
• It focuses on prioritising resolution rather than liquidation.
• Relatively short time-bound processes. With IBC in place, the overall time taken in recovery improved nearly three times. (4.3 years in 2018 to 1.6 years in 2019).
• It has successfully instilled confidence in the corporate resolution methodology.
• Increased the possibility for the creditors in recovering some of their investments in firms being liquidated. With IBC in place, the recovery rate improved nearly threefold (26.5% in 2018 to 71.6% in 2019).
• Beside promoting investor and investee confidence it has allowed credit to flow more freely to and within India.
• IBC reforms improved the ease of doing business in India that resulted in increased Foreign Direct Investment into India during 2019-2020.
• Instilled greater confidence in both foreign and domestic investors. It will help in enabling India to emerge as a ‘Make for World’ platform.

What are the other steps taken by government to promote investments?

• Government of India is working toward decriminalisation of minor offences which will significantly reduce the risk of imprisonment for actions that are not necessary.
• The rolling out of the commercial courts, commercial divisions and the Commercial Appellate Divisions Act, 2015, to resolve pending cases
• The removal of over 1,500 obsolete and archaic laws.