PM Modi's Insolvency and Bankruptcy Code: Addressing Corporate Debt and Strengthening National Fiscal Reserves

Prime Minister Narendra Modi's administration has implemented a series of economic reforms aimed at improving fiscal health, consolidation, and infrastructure development in India. One of the key initiatives has been the introduction of the Insolvency and Bankruptcy Code (IBC), which has compelled over 2,100 companies to settle nearly Rs 83,000 crores in outstanding bank debts. This move is a significant step towards curbing erroneous bankruptcy filings and ensuring that companies are held accountable for their financial obligations.

The IBC was enacted with the primary objective of rejuvenating the financial health of businesses. Before the IBC, companies often resorted to declaring bankruptcy as a mere nominal formality, sidestepping their true liabilities. This not only burdened the government with additional financial obligations but also hindered public sector banks and financial institutions.

Addressing the Problem of Erroneous Bankruptcy Filings

The primary problem that the IBC addresses is the misuse of bankruptcy provisions. Many companies had been evading their financial responsibilities by declaring bankruptcy despite having the ability to settle their debts. This not only deprived the government of badly needed revenues but also placed an additional burden on public funds. The IBC has effectively remedied this situation by permitting-resolution professionals to manage the insolvency and liquidation process in a more transparent and efficient manner.

Government's Motivation Behind the Reform

The Modi-led government's primary motivation in implementing the IBC is to enhance the fiscal health of the nation. With depleting fund reserves, the government has sought to introduce measures that would encourage responsible financial behavior among businesses. The goal is to create an environment where companies are compelled to fulfill their financial commitments, thereby contributing to the overall stability and growth of the economy.

Infrastructure Development and National Interest

The government's efforts to enhance fiscal health are closely linked to its larger goal of developing infrastructure. Projects such as electrification, digital India, and urban renewal have been implemented with the aim of improving living standards and fostering economic growth. These initiatives require significant funding and planning, which the government has sought to support through responsible corporate behavior.

For instance, the rural electrification program has successfully electrified over 83% of villages. Although this may not have reached every household, such massive projects require careful planning and substantial funding coordination. Similarly, schemes like the Jan-Dhan Yojna have helped in documenting millions of Indians financially, bringing them under the radar of the formal economy. Despite some teething issues, these initiatives have had a positive impact on the overall financial health of the nation.

Tackling Unaccounted Wealth and Enhancing Tax Compliance

Demonetization was another significant move by the government to tackle unaccounted wealth. Although the step did not entirely bring all unaccounted wealth under the government's radar, it did prompt a significant number of individuals and businesses to declare their undisclosed cash holdings. For instance, my uncle, a successful businessman in Uttar Pradesh, faced the wrath of the demonetization move and had to declare all his accounts to pay taxes. Many others too felt the impact of this move, as it forced them to become accountable for their finances.

The Goods and Services Tax (GST) is another reform that has been instrumental in enhancing tax compliance. Although still evolving, GST has replaced a cumbersome system of taxes with a more transparent and efficient one. The transition to GST has helped in reducing the overall tax burden on the common man. By introducing digital platforms for tax returns, the government has made it easier to track and manage taxes, thus ensuring that more of the public's hard-earned money is used for the development of India.

Addressing Fuel Subsidies and Rolling Back Scams

In addition to these fiscal reforms, the government has also initiated steps to address fuel subsidies. By requesting people to give up gas subsidies, the government has sought to rationalize spending and reduce financial outflows. While these subsidies were beneficial, they were also a significant drain on the country's resources. The government's efforts have been justified in the belief that these savings can be channeled towards more critical areas of development.

It is important to note that the government's actions have not been without controversy. However, as of now, the Narendra Modi government has not been implicated in any significant scams. This suggests that the vast majority of funds collected through taxes and other means have been judiciously used for the development of India. Ministers like Piyush Goyal and Nitin Gadkari have been widely lauded for their rapid pace of work, achieving significant milestones in governance and infrastructure.