Economic Survey 2018: Implementation of IBC process to be key determinant of growth

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The implementation of insolvency and bankruptcy code (IBC) process will be one of the key determinants of growth in the financial year 2018-19, the Economic Survey said today.

India will grow at 7 to 7.5 percent in 2018-19 and 6.75 percent this fiscal, the Survey said in an upbeat forecast, thereby re-instating India as the world’s fastest-growing major economy.

The Insolvency and Bankruptcy Code (IBC), 2016 was enacted for time-bound insolvency resolution process and to prevent unscrupulous, undesirable persons from misusing or vitiating the provisions of the code.

Over 4,300 cases have been filed for insolvency, out of which around 470 have been admitted to National Company Law Tribunal (NCLT), which is the arbitration authority for cases filed under IBC.

Banks, especially state-owned, have been saddled with non-performing assets (NPAs), mainly across six major sectors-- steel, power, roads, highways, and telecom--are in the process of revival, given the pile-up of bad loans that threatens to negatively affect their growth. NPAs held by Indian banks have crossed Rs 10 lakh crores.

The IBC mechanism is being used actively to resolve the NPA issue. A major factor behind the effectiveness of the new code has been the adjudication by the Judiciary as it prescribes strict time limits for various procedures under it.

“Here timeliness in resolution and acceptance of the IBC solutions must be a priority to kick-start private investment. The greater the delays in the early cases, the greater the risk that uncertainty will soon shroud the entire IBC process,” the annual Economic Survey 2017-18 tabled in Parliament said.

“It is also possible that expeditious resolution may require the government to provide more resources to PSBs, especially if the haircuts required are greater than previously expected, the ongoing process of asset quality recognition uncovers more stressed assets, and if new accounting standards are implemented,” it said.

In order to further strengthen the balance sheet of the public sector banks (PSBs), in October, the government announced a massive Rs 2.11 lakh crore recapitalisation package over two years.

“As these twin reforms take hold, firms should finally be able to resume spending and banks to lend especially to the critical, but-currently-stressed sectors of infrastructure and manufacturing,” the survey said.

Private investment seems poised to rebound, as many of the factors exerting a drag on growth over the past year finally ease off, the survey said, adding that translating this potential into an actual investment rebound will depend on the resolution and recapitalisation process.

“If this process moves ahead expeditiously, stressed firms will be put in the hands of stronger ownership, allowing them to resume spending,” it said.

However, if resolution is delayed, private capex cycle will also be disrupted, leading to impacting public investment.