IASbhai Daily Editorial Hunt | 5th Oct 2020

Life is not fair, get used to it!– Bill Gates

Dear Aspirants
IASbhai Editorial Hunt is an initiative to dilute major Editorials of leading Newspapers in India which are most relevant to UPSC preparation –‘THE HINDU, LIVEMINT , INDIAN EXPRESS’ and help millions of readers who find difficulty in answer writing and making notes everyday. Here we choose two editorials on daily basis and analyse them with respect to UPSC MAINS 2020.

EDITORIAL HUNT #172 :“Streamlining the Insolvency and Bankruptcy Code | UPSC

Streamlining the Insolvency and Bankruptcy Code | UPSCStreamlining the Insolvency and Bankruptcy Code | UPSC

Rajiv Kumar and Desh Gaurav Sekhri
Streamlining the Insolvency and Bankruptcy Code | UPSC

Rajiv Kumar and Desh Gaurav Sekhri are, respectively, Vice Chairman and Officer on Special Duty, NITI Aayog.

      HEADLINES:

Transforming business and the insolvency system

      CENTRAL THEME:

Further streamlining of the Insolvency and Bankruptcy Code can instil more confidence in foreign and local investors

SYLLABUS COVERED: GS 3:Insolvency and Bankruptcy Code

      MAINS QUESTION:

Streamlining IBC 2016 is very important post pandemic for instilling confidence and trust in local and foreign investors . Discuss -(GS 3)

      LEARNING: 

  • Key Reforms
  • Moves that can help
  • Helping MSME’s

      INTRODUCTION: 

The Insolvency and Bankruptcy Code (IBC 2016) is one of the key legislative reforms that would help aid India’s path to self-reliance on a high growth trajectory.

  • KEY REFORMS : The IBC, along with the Goods and Services Tax regime helped in significantly improving the ease of doing business in India and enabling it to emerge as a ‘Make for World’ platform.
  • ENHANCING CURRENT ACCOUNT : These reforms are expected a surge in Foreign Direct Investment into India in 2019-2020, to the tune of nearly $74.5 billion.

      BODY: 

A KEY REFORM STEP

  • STRUCTURAL REFORM : The IBC has been a far-ranging and structurally significant reform that has transformed insolvency resolution in India.
  • FOCUS : Replacing a rather inefficient bankruptcy law regime, the IBC has focused on time-bound resolution.
  • EMPOWERING TOOL : Rather than liquidation, as an empowering tool to support companies falling within its ambit.
  • REDRESSAL MECHANISM : It has successfully instilled confidence in the corporate resolution methodology. Thus, recouping some of the investments in firms from being liquidated or going in for resolution.
  • BUILDING TRUST : Its core implication has been to allow credit to flow more freely to and within India while promoting investor and investee confidence.
  • SUSPENSION AND EFFECT : Despite the suspension of the IBC for a limited duration due to the COVID 19 pandemic, in the short, medium and long term, it will prove to have been a timely reform.

It will greatly streamline insolvency processes in a sustainable, efficient, and value retaining manner.

  • PENDING CASES : India, unfortunately, suffers from a serious backlog in court cases, to the tune of nearly four crore matters pending final judgment.

On an average, it takes as many as 1,445 days for a contract to be enforced, and that too at a cost of nearly 31% of the claim value.

CRIMINAL PENALTIES

  • DECRIMINALISATION : Along with further streamlining and reinforcing the IBC, the Government of India is also working toward decriminalisation of minor offences.
  • RISK OF IMPRISONMENT : NITI Aayog is playing an active role in this exercise, which will significantly reduce the risk of imprisonment for actions or omissions that are not necessarily fraudulent or an outcome of mala fide intent.

Criminal penalties including imprisonment for minor offences act as major deterrents for investors.

  • THE INTENT : The States intent is to help differentiate between good faith mistakes and intentional bad faith actions, so as to penalise the former, and criminalise the latter.

MOVES THAT WILL HELP

IMPROVING THE INVESTMENT CLIMATE

  • REMOVING ARCHAIC LAWS : These include the rolling out of the commercial courts and the Commercial Appellate Divisions Act, 2015, to allow district court-level commercial courts, and the removing of over 1,500 obsolete and archaic laws.
  • MULTI-DIMENSIONAL APPROACH : Together with the IBC, these highlight a major and multi-dimensional effort by the government to provide comfort, relief and reliability to the potential investors.
  • OMNIBUS LEGISLATION : The IBC is both flexible and dynamic, which makes it impactful, given how forward thinking the concept of an omnibus legislation of its nature actually is.
  • GLOBAL STANDARDS : Insolvency and Bankruptcy Board of India (IBBI) has established an unprecedented organisation that both regulates and develops insolvency policy, and assesses market realities.

According to the Resolving Insolvency Index, India’s ranking improved to 52 in 2019 from 108 in 2018, a leap of 56 places.

  • RECOVERY RATES : Further, the recovery rate improved nearly threefold from 26.5% in 2018 to 71.6% in 2019.
  • OVERALL RECOVERY TIME : And, the overall time taken in recovery also improved nearly three times, coming down from 4.3 years in 2018 to 1.6 years in 2019.
  • KEY DRIVERS : Two key drivers for the IBC are relatively short time-bound processes, and the focus on prioritising resolution rather than liquidation.

CHALLENGES

  • SPEEDING UP : The report of the Bankruptcy Law Reforms Committee speaks of the critical need for speed in the working of the bankruptcy code.
  • CLARITY : It is clear that the inability to make significant decisions without full clarity of ownership and control delays resolution.

The longer the delay, the more likely that the entity in question would move towards liquidation rather than resolution.

  • ECONOMIC DEPRECIATION : The delays result in low value liquidation due to a high economic rate of depreciation.
  • INSTITUTIONAL PRE-PACKAGING : Institutionalising the introduction of a pre-packed insolvency resolution process, the need for which is highlighted by the necessary suspension of the IBC proceedings.

      IASbhai Windup: 

HELPING MSMES

  • MSME FRAMEWORK : The MCA along with IBBI are working diligently on putting in place a Micro, Small and Medium Enterprises (MSME) and non-MSME framework to help expedite this process.
  • DIGITAL INCLUSION : A concerted effort should be made to enhance the role of digitally conducting all processes and hearings to achieve greater efficiency in the new normal.
  • TECHNOLOGICAL SUPPORT : Bringing in technology would help ease of access to justice and greatly help ease of doing business from a process and efficiency standpoint as well.
  • MAJOR PUSH : The IBC has provided a major stimulus to ease of doing business, enhanced investor confidence, and helped encourage entrepreneurship while also providing support to MSMEs.

Its further streamlining and strengthening will surely instil greater confidence in both foreign and domestic investors as they look at India as an attractive investment destination.

       SOURCES:   THE HINDU EDITORIAL HUNT | Streamlining the Insolvency and Bankruptcy Code | UPSC

 

 

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