India’s Bankruptcy Code Has Drastically Improved

A photo of Narendra Modi, Prime Minister of India.

Narendra Modi, Prime Minister of India who helped enact the new bankruptcy law.
Photo credit: Narendra Modi at Flickr Creative Commons.

In May 2016, India passed a new bankruptcy law that makes it easier for failing businesses to recover from their losses. And, according to American private equity magnate Henry Kravis, the new law is “pretty darn good.”

Kravis, who co-founded multinational private equity firm KKR, has plenty of experience when it comes to insolvency. As one of the leading figures behind the 1980s leveraged buyout boom, Kravis knows exactly how to approach debt resolution.

“The problem of bad loans will never get smaller, so the more you delay, the hole will just get deeper,” Kravis told The Economic Times. “I would say the solution is to start privatizing these banks … it can be a public-private partnership model with new capital coming in from the private sector.”

When India’s newly elected Prime Minister Narendra Modi came to visit the U.S. in 2014, Kravis advised him to implement better bankruptcy policies. KKR even went as far as to produce a white paper on the subject, on which Modi based the new law.

“I have never seen a government move so fast,” Kravis exclaimed. “[Modi] was back in New York six, nine months later, and he told me ‘we’re doing it.’ And now what I hear from the lawyers is that it is a pretty darn good code.”

Before the new bankruptcy code was enacted, India placed 136 out of 189 countries in the World Bank’s resolving insolvency ranking. But within just six months, India’s ranking had already slid from slot 136 to 135. A minor improvement, sure, but an improvement nevertheless.

The changes to India’s bankruptcy laws are part of a much larger initiative to facilitate easier methods for the country to do business. In 2016, India ranked 130 in the World Bank’s Doing Business survey. According to Livemint, one of India’s leading business and financial publications, India wants to rank number 90 by 2017-18 and number 30 by 2020. An ambitious, but likely achievable, goal.

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