Credit Bursts Are Always As Inevitable as Credit Boom, says CEA Anantha Nageswaran

Chief Economic Advisor, Dr V Anantha Nageswaran said that the efficiency of the Insolvency and Bankruptcy Board of India (IBBI) will surely minimise the impact of any future credit burst in India. While speaking at an event of the Annual Day of IBBI, the Chief Economic Advisor (CEA), praised IBBI for its immense role in changing the bankruptcy landscape in India from the resolution perspective.

“We recently came out of a grand burst of the second decade of the millennium. However, credit bursts are always as inevitable as credit booms,” said Nageswaran. However, he added that if India faces any credit bursts in the future, “then we will realise the value of the IBC (Insolvency and Bankruptcy Code) process that we have put in place.” He quoted a recent NBER paper that reveals that business credit booms are followed by severe economic contractions in environments with poorly functioning business bankruptcies.

Data from the IBBI shows that creditors have, on average, realised 32 per cent of the admitted claims and 168 per cent of the liquidation value in cases resolved under IBC. According to the recent Economic Survey, the IBC has resolved over 1,000 cases and recovered over Rs 3.3 lakh crore for the creditors. Moreover, 28,000 cases involving over Rs. 10 lakh crore have been disposed of even before admission.

While IBBI has achieved a new milestone every year in the last eight years, there is still room for betterment to make the insolvency process more efficient and fast-tracked, contributing significantly to the country’s growth story, highlighted the CEA.

“A continuously evolving and improving IBC framework is important to achieving a 7-8 per cent growth over the next decade. India’s growth aspirations require capital to operate at the frontiers of productivity and efficiency. An efficient bankruptcy system will free up capital, allowing better production, employment and growth prospects,” added Nageswaran.