Bankruptcies galore in manufacturing sector

The manufacturing sector in India has witnessed the highest number of bankruptcies since 2016-- an indicator of weakness in the sector, despite the Make-In-India push by Prime Minister Narendra Modi.

The sector alone comprises of 42% of the corporate insolvency resolution processes (CIRP) filed since the inception of the Indian Bankruptcy Code. The sector has witnessed 899 CIRPs being filed since the inception of the law in 2016.

Experts attribute the problem to demonetisation, followed by ill-conceived implementation of goods and services tax (GST) in the country. “The recent slump in demand may have impacted it as well. Also, there is funding crunch in companies owing to the liquidity crisis in the market,” an analyst from Care Ratings said.

In fact, the Insolvency and Bankruptcy Board (IBBI) data reveals that the maximum hit in the manufacturing sector has come from textile, leather, and apparel product companies that have seen 151 bankruptcies being filed till now. This has been the sector that had been worst hit after the implementation of the GST.

The total number of CIRPs filed till now stand at 2,162. Another key sector that has seen the high number of bankruptcy proceedings has been the real-estate sector, which has witnessed 421 bankruptcies being filed since 2016. Of the total cases, so far only 8% have been closed or solved, while the remaining are in various stages of resolution, the data shows.

In the past, the recovery rate in India was as low as 26%. Post-implementation of the IBC, the recovery rate till date in India has improved to 43%.

However, in reference to recovery in the first quarter of FY2020, the number has dipped to 14%. “Though, the IBC process is time-bound, many of the larger cases have witnessed significant delays due to various reasons such as litigation, etc. However, this 300 days’ timeline is significantly superior to the earlier legal process (DRT, SARFAESI) where it was not unusual for the entire process to take a better part of a decade to complete,” Care Ratings said in a note.