1. Speedy bankruptcy code to level playing field for small firms: Raghuram Rajan

Speedy bankruptcy code to level playing field for small firms: Raghuram Rajan

Reserve Bank of India (RBI) governor Raghuram Rajan said on Thursday that an operational and speedy bankruptcy code will level the playing field for small firms while also asserting that a basic safety net focussed on individuals rather than firms will be important to aid the flourishment of free enterprise.

By: | Mumbai | Published: February 5, 2016 12:11 AM

 

Reserve Bank of India (RBI) governor Raghuram Rajan said on Thursday that an operational and speedy bankruptcy code will level the playing field for small firms while also asserting that a basic safety net focussed on individuals rather than firms will be important to aid the flourishment of free enterprise. Rajan was delivering the 13th Nani Palkhivala memorial lecture in Mumbai.

The governor pointed out that India has come a long way in encouraging free enterprise and graduates increasingly want to start businesses or work for start-ups rather than go to an established consultancy or bank.

Rajan indicated there is still an uneven playing field as large firms have many advantages over smaller ones.

In case of a dispute, it is hard for debtors to recover money as far as large firms are concerned and laws become more draconian to give creditors powers, he indicated while adding that there is more focus on revival rather than resolution.

“Laws (are) applied more quickly to small firms, sometimes with a bias to creditors. Operational and speedy bankruptcy code will level the playing field,” Rajan said.

The governor also asserted there is a need to create a basic safety net which is focussed on individuals rather than firms and which gives importance to aspects like unemployment insurance, basic healthcare and old age pensions.

He, however, said such measures should not be prohibitively costly for the government and indicated that reasonable premiums should be charged for the insurance while understanding that if insurance is not explicit, it will be implicit in a democratic society.

“Safety net can also encourage people to take risks they would shy away otherwise,” he observed.

On the aspect of broadening the access to capabilities, Rajan pointed out that a common man attaches no value to free enterprise if he cannot participate. Stressing on the need for the effective delivery of social programs, the governor said it is an absolutely necessity to provide everyone a fair chance to compete.

“Increasingly, enterprises of the future require employees to have decent education and health. Malnutrition curses an individual for life, as does poor early education,” Rajan said.

Fema regulations

RBI on Thursday said it has revised nine regulations issued under the Foreign Exchange Management Act, 1999 (Fema) in consultation with the government. The central bank said keeping in view the objective of promoting ease of doing business, a need was felt to consolidate the regulations and rationalise them in the light of evolving business environment and changing practices in cross-border transactions relating to external trade and payments.

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