Ease of Doing Business in India: Assessing the Role of Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code (IBC), 2016, is a game changer in credit markets. It facilitates time-bound recovery, which restores the confidence of the creditor in the system. The previous regime was fraught with a multiplicity of regulatory mechanisms which failed to bring about a unified redressal mechanism. The article is an attempt to assess the code since its implementation, how it helps bring change in the recovery mechanism and timely resolution of cases, and its impact on improving ease of doing business. The study, based on data collected from the Insolvency and Bankruptcy Board of India (IBBI), the National Company Law Tribunal (NCLT), the Reserve Bank of India (RBI), etc., explains one of the most significant process-oriented institutional reforms in post-liberalisation India. The IBC has substantially improved the insolvency ecosystem as the number of admitted and resolved cases has increased substantially. The strengthening of creditor rights and shifting the insolvency framework from liquidation towards resolution have improved the milieu. The closure-to-admitted ratio has risen significantly over time, while the ratio of resolution to liquidation has steadily increased, indicating greater emphasis on preserving firm value rather than liquidation. The reform has also contributed to India’s improvement in the World Bank’s Ease of Doing Business rankings, particularly in the ‘Resolving Insolvency’ indicator. The study also finds that the code has failed to meet its objective of a statutory timeline owing to institutional and judicial capacity constraints. Further, high haircuts, modest recovery rates and the creditor-centric orientation of the code have failed to meet the concerns of other stakeholders for justified and equitable outcomes. The success of the code depends on further reforms related to infrastructure and capacity building.