The World Bank has launched its Business Ready (‘B-ready’) report to rank countries on their business environments. This new report replaces the previous Doing Business (DB) series and covers ten key areas, including insolvency. The first phase includes 50 countries, with plans to expand. India, which showed improvement in the DB rankings due to reforms like the Insolvency and Bankruptcy Code (IBC), is expected to be included in future phases. The B-ready report introduces a broader and more detailed evaluation method, especially for insolvency regimes.
New Framework for Insolvency Assessment
B-ready assesses insolvency systems using 49 indicators across three equal pillars – regulatory quality, institutional infrastructure, and efficiency. This is a major expansion from the DB report’s 16 indicators. The new approach covers pre- and post-commencement processes, including workouts, management duties, environmental and labour claims, and cross-border insolvency mechanisms. It emphasises value protection and operational efficiency alongside regulatory quality. The report also recognises the importance of international cooperation without mandating specific laws like the UNCITRAL model.
India’s Insolvency Code and B-Ready Criteria
India’s IBC performs well on many regulatory quality indicators such as commencement procedures, creditor participation, and interim finance. However, it lacks comprehensive cross-border insolvency provisions and priority for environmental claims. Hybrid debt workout mechanisms beyond MSMEs remain underdeveloped. Institutional infrastructure is improving with initiatives like the centralised e-auction portal (eBKRAY) and plans for an integrated technology platform. Strengthening National Company Law Tribunal (NCLT) benches and enhancing data transparency also contribute positively.
Challenges in Efficiency and Scoring Nuances
Despite reforms, the IBC faces delays, with average resolution times exceeding 500 days. Efficiency remains a key challenge. Some B-ready scoring nuances may affect India’s rating. For example, interim finance under IBC gives financiers priority over all creditors, which may be seen as unfavourable by the World Bank. Also, secured creditors cannot exit automatic stay before liquidation, even if security value erodes. These technical issues require careful policy attention to optimise scores.
Implications for India’s Insolvency Reforms
B-ready’s equal focus on regulatory quality, infrastructure, and efficiency means India must balance reforms across all three pillars. Implementing planned initiatives on technology, timelines, cross-border frameworks, and environmental claims is crucial. However, the goal should be enhancing IBC’s effectiveness in resolving viable firms and liquidating unviable ones, not just ticking boxes. India may also consider developing a domestic effectiveness index tailored to local conditions. Continuous refinement and clarity in insolvency jurisprudence will be vital for India’s future rankings and economic health.
Questions for UPSC:
- Point out the significance of insolvency laws in economic growth and how they influence credit markets.
- Critically analyse the role of institutional infrastructure in improving insolvency resolution efficiency with suitable examples.
- Estimate the impact of cross-border insolvency frameworks on international trade and investment. How can India enhance its approach?
- Underline the challenges in balancing regulatory reforms and operational efficiency in implementing economic laws like the Insolvency and Bankruptcy Code in India.
