With the departure of the central bank governor of India, it casts doubt on whether the government is willing to add on some new reforms or not. It is a known fact that India’s bankruptcy and insolvency act and laws are in need of some good reforms. Some of the non-performing loans, which represent around 10% of assets in state banks will account to around $167 billion. As per the estimation from the World Bank, it will take an average of around 4 years to settle bankruptcy disputes in this country. Reforming the broken banking sector of this firm was among major economic pledges that the PM made after getting into the post in 2014.
The following year:
In 2015, the Insolvency and bankruptcy Code was established, even though the same bill faced stronger opposition from the wealthy class, who have benefited from a lack of adequate penalties for loan defaults. But public’s rage to recover debts from business tycoons along with central bank governor’s lobbying for proposed bankruptcy based legislation provided the impetus for eventual enactment in the year 2016, May.
- The new legislation has lauded some of the significant achievements of PM’slegislation provided term in office and tenure of Raghuram Rajan as governor of RBI. It has introduced a number of measures to ensure recovery and defaulting process faster and more transparent.
- These sections will include the creation of Insolvency and bankruptcy Board, just to help act as much needed regulator for agencies, asked to work on facilitating insolvency resolution and identification of some serial defaulters. They will be working on the use of professionals, mostly specializing in trying to rebuild the failing firms.
- There will be a time limit of 270 days, which will be turned around before they get liquidated. There will be a new provision for employees who will not receive wages to force company falling into bankruptcy. These measures will mainly supplement National Company Law Tribunal and its insolvency and bankruptcy code. This law mainly adjudicates insolvency cases and Debt Recovery Tribunal, which will be enforcing them.
The fears keep on rising:
However, there have been multiple instances when it has been feared that the government might not be committed fully to implement this new bankruptcy code. There have been some bank based reforms raised a few months’ back, when it was found out that Rajan’s term failed to get extended. Rajan was the former IMF economist, who was selected as RBI chief in 2013. He was the one to have installed confidence among international investors by stabilizing the rupee, halving inflation and advocating the overhaul of the banking system of India strongly. He was the one who remained quite fiercely independent of the Indian government.
Later, his outspoken style and independence appeared to have led to his certain downfall. Rajan is the one RBI governor since 1992 whose post has not been extended by 2 years. Tensions between Rajan and ruling party have become evident within the past few months, which lead many people to believe that he was forced to leave his post. The PM and the Indian government failed to defend the governor in face of some major criticism from the BJP politicians. Some have further speculated that PM views Rajan as a serious threat to his position mainly because of international clout.
Removing such a central figure caused disturbances in the country:
Removing such a central figure like Rajan from the banking sector raised quite some suspicions against Mr. Modi, who is noted to be more concerned about his political fortunes than tricky reforms. Right from the time when Rajan’s exit was announced, there have been multiple speculations that the economic policies of the PM will now turn out to be more populist centric, like boosting employment and more. However, stalling on implementation of this insolvency and bankruptcy code along with similar such other reforms is likely to undermine the confidence of investors and alienate the voters, for sure.
Right now, from the recent stages, it is clear that Indians are quite fed up with the present state they have to bear. They are fed up of the burden caused by wealthy businessmen and their defaults. They want the country to change and it is high time to take the next step forward.
Amy Jones has been serving as an experienced legal content writer in Ahlawat & Associates, which is related to company secretarial services. She is a passionate writer and always on the lookout for opportunities for sharing her knowledge with legal community. Follow her company on various social media networks like: Twitter, Facebook and LinkedIn.