Across India, 27 bankruptcy tribunals are being run by 29 judges; at least 25 short of what's required.
A telecom carrier and a retailer are showing a mirror to India’s tryst with assisted corporate demise and rebirth. The image staring back is one of defeat snatched from the jaws of victory. As the five-year-old bankruptcy experiment flounders, blame it on what development scholars refer to as “isomorphic mimicry”: Emerging economies ape the form of successful Western institutions but leave them dysfunctional and devoid of content, almost guaranteeing their failure.
Global investors were genuinely excited by India’s 2016 insolvency law, hoping to profit from the 19 trillion rupees ($260 billion) of bad loans, including those written off by banks in the last eight years. Initial success in finding new homes for distressed steel plants raised hopes that the savings-starved economy would extricate valuable capital from failed ventures. But now, creditors are balking at 90% haircuts, and bailout funds are disillusioned with everything from long delays in admitting cases by tribunals to a chronic shortage of judges.
Large, indebted businesses continue to turn into zombies. Absent a miracle, Vodafone Idea Ltd. can’t possibly repay the $30 billion the unprofitable wireless firm owes the government and banks. Future Retail Ltd. was hoping to stay afloat by selling assets to Mukesh Ambani’s bigger empire. But Amazon.com Inc., from which Future’s founder Kishore Biyani had taken money after promising to not sell out to India’s richest man, has legally blocked the deal. Unless Biyani and Amazon can strike a compromise, the pandemic-battered firm’s survival looks iffy.
Corporate death is a feature of capitalism, not a bug. India copied the British playbook of putting creditors in charge of insolvent firms. Debtors can initiate in-court bankruptcy proceedings, or lenders can pull the plug. On paper, everything looks fine. But if the institution was actually working to its intended purpose, India Inc. wouldn’t still be grappling with large enterprises that are both living and dead — just like the fabled cat in quantum physicist Erwin Schrödinger's thought experiment.
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