Bankruptcy isn’t a moral failure: Why Sanjeev Sanyal says India needs more of it

Sanyal added that bankruptcy "should not be held as a moral failure" but should be seen as a natural part of a society willing to take risks and grow.

India needs to be comfortable with people and companies going bankrupt, as continuous insolvency and bankruptcy are essential for building a risk-taking and dynamic economy, said Economic Advisory Council to the Prime Minister (EAC-PM) member Sanjeev Sanyal.

In an interview with ANI, Sanyal said a healthy economic system must allow for "continuous churn", where old companies shut down, and new ones emerge to take their place. He stressed that constant change is necessary for long-term economic strength.

Sanyal said allowing large companies to fail is sometimes unavoidable. Referring to 2017, he recalled that Indian banks were under severe stress, following which the government allowed some of the country's biggest companies to go bankrupt.

"This did not make the corporate sector weaker. In fact, it came back much stronger after the cleanup," he told ANI.

Using the airline sector as an example, Sanyal said the closure of Jet Airways created space for other airlines to expand. He added that companies that fail to follow rules or meet standards should be allowed to shut down.

"We should allow continuous churn," he said.

In his interview with ANI, Sanyal also said that success should not be viewed negatively and that people should not resent companies that perform well.

However, he added that regulators must intervene if large companies misuse their power or distort competition.

The discussion also touched on welfare policies. Sanyal said he is "very, very uncomfortable with freebies" but supports the idea of a safety net for people who take risks.

He said a risk-taking culture exists at every level of society, from a billionaire starting a large business to a person opening a small kirana shop. Since risks can fail, a safety net is necessary to support those who "fall off at the edges.

Sanyal highlighted the growing strength of India's financial markets, saying Mumbai has now become a more important centre for raising capital than London or Singapore. He said innovation is driven mainly by risk-taking capital such as equity and venture funding.

He expressed hope that over the next 25 years, the top 20 companies in India's stock market will be completely different from those today.

Comparing global trends, Sanyal said countries like the United States and China remain strong because their leading companies change frequently. In contrast, he said Europe's largest companies have remained largely unchanged for nearly 30 years, which he described as "stagnation".

Sanyal added that bankruptcy "should not be held as a moral failure" but should be seen as a natural part of a society willing to take risks and grow.