The government has started training its sights on extending the insolvency and bankruptcy code to smaller firms, following its crackdown on large corporate loan defaulters.
The Insolvency and Bankruptcy Board of India (IBBI) has started putting together a simpler version of the insolvency and bankruptcy code for partnership and proprietorship firms, the legal form that most small and medium enterprises (SMEs) take.
Why is the government widening the net?
Though the value of loans borrowed by SME is small, they far outnumber companies, exercising a significant influence on the financial sector’s stability.
The government initiative to develop an efficient and low-cost insolvency code for the SME sector is due to its ability to create jobs with low capital and the need for quick redeployment of capital in the event of an enterprise’s failure.
The ministry of micro, small and medium enterprises says the SME sector makes up 33 per cent of India’s manufacturing output. About 36 million such enterprises operate in the country, half of them in rural areas, employing more than 80 million people.
The framework of the SME bankruptcy code is expected to be drawn up by the end of this month.
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