Whilst a lot has been said and written about the crony capitalistic and “rentier” business model of favoured industrialists of this Government little if anything has been written about the Government of Indias new Insolvency and Bankruptcy law code
Firms default on bank loans for multiple reasons. Each of these, a former REC (As Rural Electrification Corporation is known now) official needed a “detailed examination and specific counter-measures.” In the case of power plants, as he said, these counter-measures could have ranged from “working capital loans; securing coal supplies; arranging PPAs; completing construction; even criminal proceedings against promoters for fraud”.
With that, several of these firms could have been rescued — protecting both jobs and banks’ loans to these enterprises. What happened, however, was very different. As The Wire described last year, the BJP-led NDA created a very stringent Insolvency and Bankruptcy Code (IBC). It wanted, as the former REC official told us, “all projects to be processed through bankruptcy courts.”
The consequences have not been appreciated fully. By 2018, with even functional firms being taken to bankruptcy courts, the number of firms queued up at bankruptcy courts stood at 2,511. To put that number in perspective, India had no more than 7,000 firms with a topline over Rs 200 crore. With more firms up for sale than potential buyers, most firms have changed hands at a pittance. Jet Airways, as The Wire reported last year, was picked up by the Jalan Kalrock Consortium (JKC) which offered Rs 475 crore against Jet’s outstanding dues of Rs 24,888 crore.
As things stand, JKC illustrates a larger pattern.
By 2018, with even functional firms being taken to bankruptcy courts, the number of firms queued up at bankruptcy courts stood at 2,511. To put that number in perspective, India had no more than 7,000 firms with a topline over Rs 200 crore.
With more firms up for sale than potential buyers, most firms have changed hands at a pittance. Jet Airways, as The Wire reported last year, was picked up by the Jalan Kalrock Consortium (JKC) which offered Rs 475 crore against Jet’s outstanding dues of Rs 24,888 crore.
A handful of Indian business groups — including some of the national champions — and global funds picked up choice firms at huge discounts, and amassed scale cheaply.
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So did a clutch of unknown firms like JKC. Despite the NCLT being empowered to pierce the corporate veil in order to ascertain the real successful bidder, several of these firms escaped scrutiny. In some cases, firms with unknown backers came in (google Worlds Window Impex, which tried to pick up one of Avantha Power’s thermal power projects in Chhattisgarh). Elsewhere, promoters mounted covert bids to reacquire their firms.
In all this, the government played a subjective role. Not only did it create a stringent bankruptcy code, it also selectively extricated some firms from bankruptcy courts while letting others slip into them.
The outcome? Not only has India Inc lived through its biggest change in ownership till date, it is not very clear who the winners are. Take JKC itself. Murari Lal Jalan (a Marwari Bania) is a UAE-based businessman few in the aviation sector had heard of. The other, Kalrock Capital founded by convicted German money-launderer Florian Fritsch has been raided by Liechtenstein authorities on charges of suspected money laundering,though neither Jalan nor Fritsch are in anyway worse then the previous owner Naresh Goyal (also a Marwari businessman)
The losers are easier to spot. They include banks, employees, consumers and ordinary citizens. India’s aviation sector, for instance, lost Jet Airways. One fallout is a sector with lesser competition and higher prices, not to say rising instances of inefficiency.
The economy, as a whole, saw extraordinary wealth destruction – as much as Rs 10.57 lakh crore in bank debt written off.
The costs don’t end there. Put national champions, an increasingly predatory state and the IBC together and you will see a fundamental reset in state-capital relations in India.
What India has today is a model where the BJP calls the shots. Within capital itself, the country now has a two-tiered structure. “
At the lower level are firms not favoured by the state. Above them are firms it favours. The second set grow fast. The first lot struggle. Both, however, know government support is necessary for them to do well. And so, a subservient relationship develops between state and capital.”
New World Order Broadcast Corp 