Government of India fast-tracks MSME insolvency

The Cabinet has approved a proposal to make amendments in the Insolvency and Bankruptcy Code, 2016 through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, as a way to provide MSMEs with an efficient alternative framework for insolvency resolution.

April 2, 2021

The amendments will reduce the time and costs involved while maximising value for all stakeholders involved.

They will help in preserving employment and maintaining business continuity for MSMEs.

All stakeholders expected to benefit from increased process efficiency throughout proceedings.

Government aims to provide fiscal support, tax assistance, and other provisions for MSMEs through reforms.

The Cabinet has approved a proposal to make amendments in the Insolvency and Bankruptcy Code, 2016 through the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2021, as a way to provide micro, small and medium enterprises (MSMEs) with an efficient alternative framework for insolvency resolution. According to an official Ministry of Corporate Affairs release on April 7, the amendments will enable MSMEs to reduce the time and costs involved during insolvency proceedings, while maximising value for all stakeholders involved. 

These amendments are designed to address the economic impact of the pandemic on various sectors, and will assist in preserving employment and maintaining business continuity for MSMEs sincerely working towards achieving a resolution and retaining the business. Additionally, stakeholders such as the adjudicating authority, corporate debtor, financial creditors, and operational creditors will benefit from increased process efficiency throughout the resolution.

In 2020, the MSME sector was recognised as a source of economic growth and employment creation, receiving critical policy, regulatory and financial support from the Central Government as part of a stimulus programme provided in order to strengthen grassroots businesses in the country. The US$280 billion programme aimed to bolster the economy and drive socio-economic development following the challenges of the COVID-19 pandemic. Additionally, the Government redefined classifications of MSMEs based on investment and valuation, amid other policy amendments, to create new opportunities for grassroots entrepreneurs.

India’s MSMEs have indeed steadily expanded their expertise, capacity, and market, and at the end of 2019 contributed 29.7 per cent of the national GDP and 49.66 per cent of total national exports. However, a major disruption in economic activities brought up by the pandemic created serious challenges for the survival of many among India’s over 60 million MSMEs. The Government continues to alleviate these challenges with several new reforms that offer fiscal support, tax assistance, and other provisions for MSMEs, in order to enable a contribution of US$1 trillion from the sector by 2025.