[MUMBAI] India's parliament passed a bill to overhaul archaic bankruptcy laws, taking Prime Minister Narendra Modi a step closer to fulfilling his pledge to make it easier to do business in the world's fastest growing major economy.
The upper house on Wednesday approved the Insolvency and Bankruptcy Act days after it was cleared in the lower house. The law will unify more than four overlapping sets of rules and aims to slash time taken to wind up a dying company or recover dues from a defaulter.
"A huge and game changing reform measure," Economic Affairs secretary Shaktikanta Das said on Twitter.
"It's a big day for economic reforms in India. The country moves ahead towards higher growth."
The bill's passage gives Mr Modi a political victory after opponents blocked several other pieces of legislation, including a national sales tax. It's also one of the biggest steps in India's battle to clean up US$117 billion of stressed assets.
The inability to shut loss-making companies and collect on dues had locked up funds at banks and damped lending and investment.
The Act "is a watershed reform that will structurally strengthen the identification and resolution of insolvencies in India," analysts including Pawan Agrawal at Crisil Ltd, the local unit of S&P Global Ratings, wrote in a May 10 report.
"Over the long term, it will enhance creditor rights, boost investor confidence and facilitate deepening of India's corporate bond market."
Creditors in India recover about 25.7 US cents on the US dollar in the 4.3 years that it takes to resolve insolvency, World Bank data show, compared with 80.4 US cents in the US after less than half that time.
The new law prescribes 180 days and empowers agencies to sell the creditor's assets to repay debtors.