India’s Bankruptcy Laws Expose Modi Government’s Economic Incompetence: 32% Recovery, 78% Overdue

In 2016, the Indian government under Prime Minister Narendra Modi announced the Insolvency and Bankruptcy Code, presenting it as a major reform. This law was meant to speed up corporate insolvencies and improve recoveries from failed businesses. However, recent reports show it has delivered only partial success and has failed to meet its main goals. It has instead revealed the Modi government’s deep economic mismanagement, as the system is stuck with judicial delays, bureaucratic inefficiency, and slow processes, failing to govern effectively.

♦ A Failed Promise: The 2016 code, once celebrated as a key reform, has not achieved its goals of faster resolutions or higher recoveries from failed companies.

♦ Exposing Mismanagement: The law’s failure highlights the current Indian government’s inability to manage the economy, as the system is broken and inefficient.

A System Failing by the Numbers

The clearest proof of this failure comes from the data. Of the 8,000 firms that were enrolled in the new insolvency program, just over 60% were resolved. This leaves a massive number of businesses stuck in the system. More concerning is the extremely low recovery rate for lenders, which has averaged a meager 32%. This means that creditors are getting back barely a third of the money they were owed, showing the system is failing to protect financial interests.

♦ Low Resolution Rate: With only 60% of 8,000 firms resolved, the system is clearly unable to handle the volume of cases, creating a significant backlog.

♦ Meager 32 Percent Recovery: Lenders recovering only 32% of their money shows that the process is destroying the value of assets rather than saving it.

Crippling Delays from the Very Start

The entire process is crippled by systemic inefficiencies and bureaucratic dysfunction. The problems begin long before a case even reaches a courtroom. Reports indicate that the admission process for an insolvency case can take up to two years. This is true even for clear defaults of over ₹10 million (about $113,600), where the facts are not in dispute. This initial delay makes a joke of the law’s promise of speed.

♦ Two Year Wait for Admission: The fact that it can take two years just to start a case proves the system is burdened by extreme bureaucratic slowness.

♦ Ignoring Clear Defaults: Even straightforward cases of default are not being fast tracked, showing the administrative setup is fundamentally broken.

Dysfunctional Courts and Poor Infrastructure

The problems are made worse by the poor state of the judicial infrastructure. Many courtrooms are described as being cramped and dysfunctional. They suffer from basic issues like broken air conditioning, insufficient seating, and outdated facilities. This kind of environment makes justice slow and difficult to access. It shows a clear lack of serious investment or attention from the government.

♦ Cramped and Broken Courtrooms: The poor physical condition of the courts makes it very difficult to conduct legal proceedings efficiently.

♦ A Hostile Environment for Justice: The lack of basic facilities creates an atmosphere that slows down the entire resolution process for businesses.

A Severe Lack of Judicial Expertise

Compounding the infrastructure crisis is a deep problem with judicial incompetence. Many of the courts are reportedly staffed with retired bureaucrats instead of industry professionals. These retired government servants often lack the specific financial or technical knowledge needed to handle complex corporate failures. This results in decisions that are slow, full of errors, and sometimes even corrupt.

♦ Bureaucrats Instead of Experts: Appointing retired government workers rather than financial experts to these specialized courts is a major flaw in the system.

♦ Slow and Flawed Decisions: This lack of expertise leads to poor judgments, procedural mistakes, and a general slowing down of the insolvency process.

High Profile Failures in Court

The lack of technical and industry knowledge in the courts has created an environment that is hostile to efficient resolutions. Procedural lapses are common. This was highlighted by the Supreme Court’s decision in May 2025 to reverse JSW Steel’s takeover ruling, a move that drew widespread criticism from the industry. It showed that the lower courts are making serious errors.

♦ Supreme Court Reversal: The JSW Steel case exposed the poor decision making in the lower tribunals, forcing the Supreme Court to step in.

♦ Industry Criticism: The legal confusion and flawed rulings have damaged business confidence and highlighted the incompetence within the judicial setup.

Glacial Pace of Business Closure

The insolvency machinery itself moves at a glacial pace. A shocking 78% of the 1,900 ongoing cases have now exceeded the 270-day legal deadline. This is a sharp increase from 68% last year, showing the problem is getting worse. Even voluntary liquidations, where all the documents are clean, drag on for around 4.3 years. Government red tape is a major cause of this.

♦ 78 Percent of Cases Overdue: The fact that most cases miss the legal 270-day deadline proves the law is not working and the delays are systemic.

♦ 4.3 Years for Voluntary Closures: It taking over four years for a simple, undisputed business closure is a clear sign of extreme bureaucratic failure.

Conclusion: A System Crippling the Economy

Nearly three years of the 4.3 year delay in voluntary liquidations are lost just in government clearances, highlighting the severe administrative hurdles. The Modi administration finally proposed reforms in August 2025, including fast tracking proven defaults and allowing out of court settlements. While these measures might help in the future, they come years too late. The system is already broken and has crushed businesses and investor confidence. As one editorial bluntly stated, “India’s bankruptcy laws are hobbling the country.” The Modi government has overseen a system plagued by delays and inefficiency, exposing its failure to govern and casting serious doubt on its ability to manage India’s economic future.

♦ Government Red Tape: Bureaucratic bottlenecks and administrative hurdles are directly responsible for years of delays, preventing timely business closures.

♦ Too Little Too Late: The August 2025 reform proposals are a belated admission of failure after the system has already throttled the economy.