January 08, 2004
Posted by Gordon Smith

One of the core attributes of economic relationships is exit. When people form relationships, they usually create rules about exit. Sometimes, people agree that any party to a relationship can exit at will. In other circumstances, exit may be constrained by contract or regulation. Tonight, while riding the bus to another event, I spoke with an economics professor from the Management Development Institute, which is hosting our group. He told me that India does not have a bankruptcy code. Does this strike anyone else as problematic?

OK, there was some exaggeration in my lead. While efforts have been made to craft an American-style bankruptcy code, Indian companies currently have to deal with the Sick Industrial Companies Act of 1985 (SICA), which creates a government Board for Industrial and Financial Reconstruction (BIFR). Essentially, what happens here is that "sick" companies are referred to to BIFR, which then has the primary responsibility of preserving jobs. Most of the companies that get to BIFR are merged out of existence.

There is widespread agreement that SICA does not get companies into the system quickly enough. Moreover, the government's role is focused on preserving jobs. In the case of company failure, for the best of all concerned, a quick death is best. My new professor friend expressed the belief that the current law discourages company formation by those who are concerned about exit options.

Interestingly, he tells me that startup IT firms are relatively insulated from the effects of this law. For one thing, the number of employees affected by a firm closure of this type is typically very small, thus dampening the sense of catastrophe. Perhaps more importantly, most knowledge workers don't have time for a court to hear their grievance. Plus, they have a (new) job to do.

India | Bookmark

TrackBacks (0)

TrackBack URL for this entry:

Links to weblogs that reference Exits:

Recent Comments
Popular Threads
Search The Glom
The Glom on Twitter
Archives by Topic
Archives by Date
January 2019
Sun Mon Tue Wed Thu Fri Sat
    1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26
27 28 29 30 31    
Miscellaneous Links