Sanjeev Sanyal: New Corporate Insolvency Regime Is Central To Modi’s Vision Of A New India

“Bankruptcy is central to this government’s worldview,” said Principal Economic Adviser to the Ministry of Finance Sanjeev Sanyal, addressing an audience on the sidelines of the International Conference on the New Corporate Insolvency Regime. It is “central to the vision of Prime Minister Modi’s idea of a New India, based on entrepreneurship, innovation, risk-taking and social and economic churn and mobility”.

The government paved the way for a new insolvency and bankruptcy regime which, among other things, hopes to make doing business in India easy and solve the NPA (non-performing asset) crisis in India. Installation of a new code stems from a difference in approach to bankruptcy, explains Sanyal.

“One of the underlying assumptions [of the Nehruvian style of socialism] was to think of the economy as some sort of a machine... Why does this matter? It matters because, you see, if the economy is a machine... you have to make a meticulous plan of how that machine is to be built and then very, very meticulously implement that plan.”

While this might sound reasonable, this approach has not helped Indian economy flourish in the decades after independence.

The problem is, as Sanyal asks, “What if the economy is not a machine? What if it’s actually a complex, adapting ecosystem that is being bombarded with both negative and positive shocks?”

There is no way for a policy maker or a businessperson to make a ‘Great Plan’ for an evolving system. “Instead, in the real world, we have to make our way continuously by flexibly adapting to this new environment. And inherent to this worldview is the idea of failure.”

“We have to get away from the idea that somehow bankruptcy is some sort of a moral failure,” he adds. “Which is one of the big issues of the past... the game here is to be able to deal with that real time.”

Sanyal says this “new” school of thought is not really new; it is present in Indian mythology, as illustrated in the story of samudra manthan, when the gods churned the ocean, leading to both poison and nectar being released into the seas, and Shiva consuming all the poison to save the world. This process of destruction and rebirth is central to the way government approaches bankruptcy.

“Bankruptcy is merely a practical matter of cleaning up the failures that happen along the way. Think of it as Swachh Bharat for the economy.”

The new policies and institutions are meant to be “resolution mechanisms”, says Sanyal, so that the “transition is as painless as possible” for the entrepreneurs, the promoters, the debtors, the creditors and, of course, the employees. “It has to be done so that this rebirth can happen.”

This is very critical to the way the New India is being built, he concludes.