DAILY NEWS ANALYSIS

Cotton cultivation, once considered a high-value Kharif crop, is increasingly becoming unprofitable for farmers, especially in states like Haryana. This is due to the combined impact of pest resistance, market volatility, and rising input costs.

As a result, many farmers are falling into debt and shifting towards water-intensive crops like paddy, which has serious ecological consequences, including groundwater depletion.To address these challenges, the Union Government has increased the Minimum Support Price (MSP) for cotton for the 2025–26 season and expanded procurement efforts.

About Cotton Cultivation in India

Cotton, often referred to as “White Gold”, is one of India’s most important commercial crops and contributes significantly to the economy. India accounts for about one-fourth of global cotton production.

A major feature of cotton cultivation is that nearly 67% of the area is rain-fed, making it highly dependent on the monsoon, while only 33% is irrigated.

Historically, cotton cultivation in India dates back to the Indus Valley Civilization, and Indian cotton textiles were globally renowned. However, during colonial rule, India was reduced to a supplier of raw cotton for British industries.

Cotton Production in India

India ranks first in the world in terms of cotton acreage, with around 40% of the global area under cotton cultivation.

It is the second-largest producer of cotton, with an estimated production of 343.47 lakh bales (5.84 million metric tonnes) in 2022–23, accounting for 23.83% of global production.

Major Cotton Producing Zones

• Northern Zone: Punjab, Haryana, Rajasthan

• Central Zone: Gujarat, Maharashtra, Madhya Pradesh

• Southern Zone: Telangana, Andhra Pradesh, Karnataka

Cotton Productivity in India

Despite large cultivation area, India ranks 39th in cotton productivity (yield) globally. This is significantly lower than countries such as the United States, China, and Brazil.

Cotton Consumption in India

India is the second-largest consumer of cotton globally, accounting for 22.24% of world consumption (2023).

The domestic textile industry relies largely on indigenous cotton, with less than 10% of total consumption being imported.

Cotton (Scientific Name: Gossypium spp.)

Cotton is a soft, fluffy staple fiber that grows in a boll (protective case) around its seeds. It is a shrub (semi-xerophyte) native to tropical and subtropical regions across the world, including the Americas, Africa, Egypt, and India.

Geographic and Climatic Requirements

Climate

Cotton requires a tropical to subtropical climate, with an optimum temperature range of 21°C to 30°C.

Rainfall

It typically needs 50 to 100 cm of rainfall. However, cotton can also be grown in areas with lower rainfall using irrigation, such as in Haryana and Rajasthan.

Frost-Free Days

Cotton cultivation requires at least 210 frost-free days during the growing period to ensure proper development.

Soil

Cotton grows best in well-drained black cotton soil (Regur soil) found in the Deccan Plateau, which has high moisture-retention capacity.
It also thrives in alluvial soils in North India and red/laterite soils in South India.

Species of Cotton

There are four main species of cotton:

1. Gossypium arboreum – Asian cotton

2. Gossypium herbaceum – Asian cotton

3. Gossypium barbadense – Egyptian cotton

4. Gossypium hirsutum – American Upland cotton

Cotton Varieties and Hybrids in India

• G. hirsutum accounts for 90% of hybrid cotton production in India.

• All current Bt cotton hybrids in India are based on G. hirsutum.

• Bt cotton, a genetically modified crop, was introduced in 2002 to combat the American bollworm.

• Currently, approximately 95% of India’s cotton area is under Bt cotton cultivation.

• India is reportedly the only country which grows all four species of cotton.

Bt Cotton (Genetically Modified Cotton)

Bt cotton is a genetically modified (GM) cotton developed by incorporating a gene from the bacterium Bacillus thuringiensis (Bt). This modification makes the plant resistant to major pests, particularly the bollworm, which is a significant threat to cotton yield.

Approval and Commercialization

• Bt cotton was approved for commercial cultivation in 2002 by the Genetic Engineering Appraisal Committee (GEAC) under the Ministry of Environment, Forest and Climate Change.

• The widely known Bollgard I and Bollgard II technologies were instrumental in developing early Bt cotton varieties.

Recent Developments: Pink Bollworm-Resistant Bt Cotton

• The CSIR-National Botanical Research Institute (NBRI) has recently developed the world’s first Pink Bollworm-resistant GM cotton.

• CSIR-NBRI engineered a novel insecticidal gene that provides superior resistance to Pink bollworm compared to the traditional Bollgard II cotton.

• This new GM cotton also offers protection against other pests, including the cotton leafworm and fall armyworm.

Challenges Associated with Cotton Farming in India

1. Pest-Induced Yield Decline

The Pink Bollworm has developed significant resistance to Bt Cotton since 2014. As a result, cotton yields have fallen drastically from 10–12 quintals per acre to just 3–4 quintals. This resistance has reduced the effectiveness of genetically modified cotton, increasing the risk of crop failure for farmers.

2. Economic Non-Viability

According to the Chaudhary Charan Singh Haryana Agriculture University (CCSHAU) 2025 report, cotton farming has become economically unsustainable. Farmers face average net losses of Rs 15,143 per acre, as total cultivation costs (around Rs 40,024) exceed the gross returns (around Rs 24,882). This financial stress has pushed many farmers into debt.

3. Reduction in Cultivation Area

Data from the Ministry of Agriculture and Farmers Welfare shows that the cotton cultivation area in Haryana has declined from 0.72 million hectares in 2019-20 to 0.40 million hectares in 2024-25. Consequently, Haryana’s contribution to national cotton production fell from 5.36% to 3.47%. This reflects a shift towards alternative crops, especially paddy.

4. Market and MSP Disparity

Cotton farmers often sell their produce at prices well below the Minimum Support Price (MSP), sometimes as much as Rs 1,600 per quintal lower, due to alleged quality issues and the absence of effective government procurement mechanisms. This market failure exacerbates farmers’ financial stress and reduces incentives to cultivate cotton.

5. Shift to Paddy and Ecological Risks

Despite government incentives like ‘Mera Pani-Meri Virasat’, farmers are increasingly switching to water-intensive paddy cultivation, particularly in semi-arid districts such as Sirsa and Hisar. This shift threatens groundwater conservation and contributes to long-term ecological degradation.

6. Terms of Trade (ToT) Imbalance

There is a significant imbalance between the rising costs of inputs such as diesel, seeds, and fertilizers, and the prices farmers receive for cotton. Over the past two decades, the purchasing power of a quintal of cotton relative to essential commodities, including fuel and gold, has declined sharply, making cotton farming less economically attractive.

7. Socio-Economic Displacement

Cotton cultivation is highly labor-intensive, providing employment for women and Scheduled Caste (SC) workers. The shift to mechanized paddy harvesting favors migrant labor, resulting in loss of seasonal employment for local communities and increased rural-to-urban migration.

8. Insurance and Policy Gaps

Farmers insured under the Pradhan Mantri Fasal Bima Yojana (PMFBY) report delays or denials in receiving claims for pest-related crop losses. This policy gap leaves cotton farmers exposed to financial risks, especially during pest outbreaks like the Pink Bollworm.

9. Weather Variability and Climate Risks

Cotton is a climate-sensitive crop, and its productivity is affected by erratic rainfall, droughts, floods, and soil degradation. Rising temperatures and changing monsoon patterns pose long-term risks to the sustainability of cotton cultivation, making it more vulnerable to climate change.

Government Initiatives to Support Cotton Industry in India

The Indian government has implemented multiple initiatives to support cotton farmers, stabilize the market, enhance productivity, and promote technological innovation. These programs aim to secure farmers’ incomes, reduce import dependence, and strengthen the global competitiveness of India’s cotton and textile sector.

1. Cotton Corporation of India (CCI)

• Established: 1970 under the Ministry of Textiles as a Public Sector Undertaking (PSU) under the Companies Act, 1956.

• Purpose: Ensures fair prices for farmers, stabilizes market fluctuations, and implements Minimum Support Price (MSP) operations effectively.

2. Technology Mission on Cotton (2000)

• Focused on improving productivity, quality, and competitiveness of cotton.

• Implemented measures such as improved seeds, better irrigation, and modern cultivation technologies.

3. Bt Cotton (2002)

• India’s first genetically modified (GM) crop.

• Introduced to combat pests like the American Bollworm, enhancing yields and reducing crop losses.

4. Cotton Development Programme under NFSM (2014–15)

• Implemented in 15 major cotton-growing states.

• Aimed to increase productivity and output through improved agronomic practices and farmer support.

5. National Technical Textiles Mission (2020)

• Promotes research, innovation, and value addition in cotton-based technical textiles.

• Supports the growth of high-value cotton products for domestic and export markets.

6. Mega Investment Textile Parks (MITRA)

• Establishes seven textile parks over three years.

• Focuses on boosting investment, infrastructure, and global competitiveness in the cotton and textile sectors.

7. Digital Tools for Farmers

• Cott-Ally Mobile App: Provides farmers with real-time information on MSP, procurement centres, payments, and best agricultural practices.

8. Institutional and Advisory Support

• Textile Advisory Group (TAG): Coordinates stakeholders on productivity, prices, branding, and policy issues.

• Committee on Cotton Promotion and Consumption (COCPC): Ensures availability of cotton to the textile industry and monitors market stability.

9. Branding of Indian Cotton

• KASTURI Cotton India: Launched to promote Atmanirbhar Bharat and make Indian cotton globally recognizable.

• Encourages self-regulation by industries in traceability, certification, and branding of high-quality cotton.

10. Mission for Cotton Productivity (2025–26 Budget Initiative)

• Duration: Five-year mission.

• Objective: Enhance productivity, sustainability, and promote extra-long staple (ELS) cotton varieties.

• Ministry: Ministry of Textiles.

• Key Features:

  • Provides science and technology support to cotton-growing farmers.

  • Aligns with the government’s 5F vision for the textile sector: Farmers’ income, Fiber quality, Fashion, Finance, and Future growth.

  • Ensures steady supply of quality cotton for traditional textile units and MSMEs, which account for 80% of India’s textile capacity.

  • Aims to reduce import dependence and enhance India’s global competitiveness in textiles.

Steps to Strengthen India’s Cotton Industry

To make cotton cultivation more profitable, sustainable, and globally competitive, several strategic measures can be implemented. These focus on technological innovation, improved management practices, market positioning, and value-chain integration.

1. Accelerating Seed Technology (Next-Gen Bt)

• There is an urgent need to approve advanced transgenic varieties, including Bollgard-II RRF (Roundup Ready Flex), to counter Pink Bollworm resistance, which has reduced the effectiveness of older Bt cotton technologies.

• These next-generation seeds can improve yields and reduce pest-induced losses.

2. Promoting High-Density Planting System (HDPS)

• Transitioning from traditional row spacing to HDPS can significantly increase yield per hectare.

• This method allows more plants per acre and is compatible with mechanized harvesting, helping reduce labor costs.

3. Focus on Long-Staple Cotton

• India currently imports high-quality extra-long staple (ELS) cotton from countries like Egypt and the US.

• Providing incentives for ELS cultivation in the South Zone (Tamil Nadu, Karnataka) can reduce import dependence and enhance competitiveness in premium textile segments.

4. Strengthening the “Kasturi Cotton India” Brand

• Enhancing traceability and certification of Indian cotton under the Kasturi brand can help fetch premium prices in the global market.

• This will enable India to compete with global varieties such as Pima cotton (US, Peru) and Giza cotton (Egypt).

5. Modernizing Ginning and Pressing (G&P) Units

• Much of India’s cotton is contaminated during the ginning process, affecting fiber quality.

• Incentivizing upgrades of G&P units with modern pre-cleaning machines is essential to maintain high-quality fiber.

6. Fast-Tracking the PM MITRA Scheme

• The PM MITRA scheme should integrate the entire value chain—spinning, weaving, processing, and printing—at a single location.

• This will reduce logistic costs and increase operational efficiency for textile manufacturers.

7. Integrated Pest Management (IPM)

• Beyond genetically improved seeds, farmers must be trained in IPM practices, including pheromone traps, light traps, and biological control agents such as Trichogramma.

• This reduces reliance on chemical pesticides while effectively managing pests like the Pink Bollworm.

8. Digital Integration

• Implementing blockchain-based traceability ensures quality certification, transparency, and fair price discovery.

• Satellite-based crop area estimation can help farmers and textile mills with better risk management and accurate procurement planning.

Conclusion:
By combining advanced seed technologies, modern cultivation practices, integrated pest management, value-chain optimization, and digital tools, India can strengthen its cotton industry, enhance farmer incomes, reduce import dependence, and position itself as a global leader in premium cotton production.

• Global Supply Chains (GSCs), also called Global Value Chains (GVCs), are international networks connecting production, distribution, and trade across multiple countries.

• Each country typically specialises based on comparative advantage, producing certain components or services while importing others.

• Enabled by globalisation, trade liberalisation, and technology, GSCs allow firms to optimise costs and efficiency.

Key Characteristics

1. Fragmentation of Production: Production occurs in multiple countries across different stages.

2. Just-in-Time (JIT) Systems: Minimal inventory is maintained, relying on timely deliveries.

3. Hyper-specialisation: Certain regions dominate specific industries (e.g., electronics in East Asia).

4. Interdependence: Economies and firms are tightly linked, making disruptions in one region impactful globally.

Implications

• These features improve efficiency but reduce resilience, making supply chains vulnerable to shocks.

• Recent crises like the Russia-Ukraine war, Middle East tensions, and COVID-19 exposed vulnerabilities in energy, logistics, and commodities.

Global Supply Chain Shifts

Drivers of Change

1. Geopolitical Conflicts: Interruptions in energy and commodity flows.

2. Trade Weaponisation: Sanctions, export controls, and strategic restrictions increase uncertainty.

3. Overdependence on Single Geographies: Heavy reliance on East Asia for manufacturing and critical components.

Economic Impact

• The IMF warns that global trade fragmentation could reduce global GDP by ~7%.

• Firms are increasingly diversifying sourcing networks, building redundancies, and reducing dependency on a single country or region.

Geopolitical Fragmentation

• Globalisation is not ending but fragmenting into regional and strategic blocs.

• Features of this trend include:

  • Disruptions at critical chokepoints (e.g., Strait of Hormuz, Red Sea).

  • Rise of friend-shoring (preferential trade with allies) and near-shoring (relocating production closer to home markets).

  • National security considerations increasingly shaping trade policies.

• Supply chains are now considered strategic assets, not merely commercial tools.

India as a Global Supply Chain Alternative

Key Advantages

1. Large Domestic Market: Supports economies of scale and acts as a demand anchor for global firms.

2. Demographic Dividend: Young workforce compared to ageing East Asian economies.

3. Political Stability & Institutions: Democratic system ensures policy predictability and lower geopolitical risk.

4. Strategic Autonomy: Ability to engage with multiple geopolitical blocs increases attractiveness for supply chain relocation.

Implications

• India’s geopolitical neutrality, market size, and workforce potential position it as a viable alternative in a fragmented global supply chain landscape.

• Multinational corporations are considering India for diversification and risk mitigation, especially in critical manufacturing and technology sectors.

India’s Efforts in Strengthening Supply Chains

India has undertaken multiple initiatives to enhance supply chain resilience, attract investment, and integrate into global value chains (GVCs).

1. Production Linked Incentive (PLI) Scheme

• The PLI scheme incentivises incremental production across 14 key sectors, including electronics, pharmaceuticals, solar, and automobiles.

• It has significantly improved India’s competitiveness and attracted global investment.

• While successful in boosting manufacturing, long-term integration into GVCs remains a work in progress.

2. Trade Agreements and Export Promotion

• India is pursuing an evolving Free Trade Agreement (FTA) strategy to strengthen its global position.

• Agreements are in place with the UAE, Australia, and the UK, while negotiations continue with the EU and the USA.

• Benefits include preferential market access and a boost to exports of electronics, textiles, and engineering goods.

• Combined with logistics reforms like PM Gati Shakti and the National Logistics Policy, India is reducing costs and improving efficiency.

3. Supply Chain Resilience Initiative (SCRI)

• SCRI is a trilateral partnership between India, Japan, and Australia.

• Objectives:

  • Reduce reliance on single-source suppliers.

  • Diversify sourcing and enhance economic stability in the Indo-Pacific region.

  • Utilize digital technologies and share best practices to mitigate disruptions.

4. Case Study: Electronics Manufacturing

• India has become a growing hub for electronics and smartphone manufacturing.

• Increase in domestic mobile manufacturing units and exports of smartphones indicates global firms are diversifying beyond China.

• India is transitioning from a back-office economy to a manufacturing hub, strengthening its role in global value chains.

Key Drivers of Growth in India’s Exports

India’s export performance has been supported by multiple factors ranging from government initiatives to global shifts in supply chains.

1. Strategic Government Initiatives and Policy Reforms

• Production Linked Incentive (PLI) Scheme and Make in India have boosted domestic manufacturing and export capacity.

• The Foreign Trade Policy 2023 simplifies export procedures and incentivizes emerging sectors like e-commerce and high-tech products.

• Impact Example: Mobile phone exports grew from near-zero in 2016 to over $20 billion in 2024, and pharmaceuticals exports reached $27.85 billion in 2023–24.

2. Diversification of Export Portfolio and Markets

• India has moved beyond traditional commodities to high-value sectors such as electronics, engineering goods, and services.

• Diversification reduces dependence on a few products or markets, lowering vulnerability to shocks.

• India’s merchandise exports reached over 115 countries, with the US, UAE, and Netherlands accounting for 51% of exports.

3. Expansion into Global Value Chains (GVCs)

• India’s participation in GVCs enables specialization in value-added production stages, improving export quality and scale.

• Despite a GVC participation rate of ~41.3%, policies and infrastructure aim to strengthen both backward and forward linkages.

• Example: Exports to China grew 8.7% to $16.67 billion in FY24, reflecting regional integration and high-tech manufacturing potential.

4. Resilience and Growth of Services Exports

• Services exports, particularly in IT, telecom, and business services, support export growth with high value addition.

• Services exports rose 12.45% in FY25 to $374 billion, offsetting merchandise volatility.

• India’s strength in digital services aligns with global remote work trends.

5. Infrastructure and Logistics Modernization

• Improved ports, multimodal logistics, and digital customs platforms reduce costs and accelerate exports.

• Initiatives like Sagarmala and PM GatiShakti aim to cut logistics costs (up to 14% of export value).

• Expansion of national waterways and establishment of 35 multimodal logistics parks enhance cargo movement efficiency.

6. Digitalization and Ease of Doing Business

• Platforms like the National Single Window System and Trade Connect simplify approvals, reduce compliance burdens, and speed up customs clearance.

• Automation and cloud-based systems support SMEs in accessing global markets efficiently.

7. Geopolitical Shifts and Trade Realignments

• Global tensions (US-China trade conflict, supply chain disruptions) provide India opportunities to capture new trade flows.

• Exports grew 5.5% to $821 billion in FY25, outperforming global averages.

• FTAs with UAE, Australia, and EFTA countries enhance market access and diversification.

8. Rising Domestic Demand Supporting Export Competitiveness

• Strong domestic markets create economies of scale and foster innovation.

• Domestic demand supports sectors like electronics, pharmaceuticals, and automotive.

• Stable growth at 6.5% amid global headwinds strengthens exporters’ competitiveness.

9. Enhanced Financial Support and Export Credit

• Schemes like the Interest Equalisation Scheme and MSME credit facilities reduce financing costs.

• EXIM Bank and SIDBI provide lines of credit for global market expansion.

Key Issues Affecting India’s Integration in Global Value Chains

Despite growth, India faces several challenges in fully integrating into GVCs:

1. Limited Backward Linkages

• India relies on forward linkages, exporting raw materials instead of high-value products.

• Backward linkage index fell from 47.6% in 2008 to 41.3% in 2018, highlighting weak import integration.

• Example: High dependence on China for telecom components ($101.7 billion in FY24).

2. Infrastructure Deficiencies and Logistical Bottlenecks

• Port congestion and limited cold chain facilities increase costs and delays.

• Major ports like Jawaharlal Nehru Port Trust face capacity constraints, deterring global lead firms.

3. Complex and Inconsistent Trade Regulations

• Fragmented tariffs, complex customs, and frequent policy changes create uncertainty.

• Misclassification of products and unclear HS codes increase compliance costs, especially in electronics and pharmaceuticals.

4. Skill Gaps and Labor Constraints

• Skilled workforce shortages in manufacturing and high-tech sectors impede GVC integration.

• Only 42.6% of graduates were employable in 2024.

• High-tech sectors like semiconductors and pharmaceuticals face a scarcity of specialized skills.

5. Weak MSME Linkages with Lead Firms

• MSMEs contribute ~50% of exports but have limited GVC integration.

• Barriers include lack of finance, technology, and management expertise.

• Example: Vietnam’s Samsung-led GVC integration demonstrates potential for India.

6. Insufficient R&D and Innovation

• India invests only 0.6% of GDP in R&D, limiting design and high-value manufacturing participation.

• Weak academia-industry collaboration curtails innovation and movement up the value chain.

7. High Domestic Tariffs and Protectionism

• High tariffs on intermediate goods raise input costs, discouraging GVC participation.

• Despite reforms, India’s tariffs remain higher than ASEAN peers, affecting electronics and automotive sectors.

8. Geographic Concentration of Export Activity

• Export activity is concentrated in 6 coastal states contributing 70% of total exports.

• Inland states remain underdeveloped due to poor infrastructure and power supply, limiting nationwide GVC participation.

The Lok Sabha has passed the Insolvency and Bankruptcy Code (Amendment) Bill, 2025, introducing 12 key amendments to the IBC, 2016.

• The amendments aim to maximize stakeholder value, enforce strict resolution timelines, and align Indian insolvency law with global best practices, including cross-border insolvency frameworks.

Insolvency and Bankruptcy Code (IBC), 2016

The IBC, enacted in 2016, provides a time-bound framework to resolve the insolvency of companies, partnerships, and individuals.

Objectives

1. Revival of Distressed Firms: Enable financially troubled companies to revive through a resolution plan, ensuring continuity as a going concern.

2. Orderly Liquidation: If revival is not feasible, facilitate systematic liquidation of assets to maximize value for creditors.

3. Creditor-Driven Process: The law empowers creditors to initiate proceedings, marking a shift from earlier debtor-focused frameworks.

4. Strict Timelines: Ensures insolvency resolution within pre-defined periods, improving efficiency and predictability.

Key Features

• Consolidation of multiple fragmented laws into a single framework.

• Encourages early detection of financial distress and timely intervention.

• Promotes transparency and accountability in insolvency proceedings.

• Provides a legal safeguard to protect creditors’ interests while maintaining the business as a going concern.

Issues in Implementation

Despite its transformative nature, the IBC has faced several operational challenges:

1. Delays in Case Admission: Slow admission of cases has weakened the time-bound intent of the law.

2. Tribunal Backlogs: Overloaded NCLT benches have extended resolution timelines beyond prescribed limits.

3. Modest Recovery Rates: Banks and financial institutions often recover less than optimal amounts, reducing incentives.

4. Effectiveness Concerns: These challenges have diluted the impact of the IBC, highlighting the need for reforms to strengthen the framework.

Key Provisions of the IBC (Amendment) Bill, 2025

1. New Resolution Models

• The Bill replaces the fast-track process with a creditor-initiated insolvency framework.

• Introduces an out-of-court settlement option to reduce court intervention.

• Adopts a "debtor-in-possession, creditor-in-control" model, allowing businesses to continue operations while resolution plans are implemented.

2. Strict Timelines

• Liquidation must be completed within 180 days, extendable up to 90 days in exceptional cases.

• Insolvency applications must be admitted within 14 days once default is established.

• The Adjudicating Authority (AA) must approve or reject resolution plans within 30 days.

• Appeals to NCLAT must be decided within 3 months.

3. Compressed Out-of-Court Process

• A new out-of-court initiation mechanism has a 150-day timeline, ensuring faster resolution and quicker recovery.

4. Cross-Border and Group Insolvency

• The Bill enables cross-border insolvency to handle global corporate assets and claims.

• Introduces a framework for group insolvency, important for complex corporate structures and international investor confidence.

5. Deterrents for Litigation

• To prevent frivolous or vexatious litigation, individuals initiating such proceedings may face penalties ranging from ?1 lakh to ?2 crore.

6. Protection of Workmen

• Workmen’s dues are given high priority under the IBC hierarchy.

• They are placed on par with secured creditors and ranked above unsecured financial creditors and government dues.

7. Post-Resolution Success

• The market capitalization of firms resolved under the IBC reportedly grew from ?2.8 lakh crore to ?9 lakh crore within 5 years, demonstrating the efficacy and value of the framework.

Overview of the Insolvency and Bankruptcy Code (IBC), 2016

The IBC, 2016 is a landmark legislation in India designed to consolidate and simplify the insolvency and bankruptcy framework for companies, partnership firms, and individuals.

• Prior to 2016, insolvency cases were fragmented across multiple laws such as the SARFAESI Act, 2002 and the Companies Act, 2013, leading to long delays and low recovery rates for creditors.

• The IBC provides a time-bound resolution process to balance the interests of debtors and creditors while preserving the going concern value of the business.

Core Objectives of IBC, 2016

1. Timely Resolution: Complete insolvency proceedings within a strict timeframe (180 days as per the 2025 amendment, extendable up to 90 days).

2. Preservation of Assets: Maintain the debtor’s business as a going concern rather than immediate liquidation.

3. Clean Exit: Facilitate an orderly exit for failed businesses, encouraging entrepreneurship and ensuring continued credit flow to the economy.

Institutional Framework

The IBC relies on four key pillars to ensure effective implementation:

1. Insolvency Professionals (IPs): Licensed experts who manage the debtor’s affairs during resolution.

2. Insolvency Professional Agencies (IPAs): Regulatory bodies that enroll and monitor IPs.

3. Information Utilities (IUs): Central databases that provide authenticated financial information to quickly establish defaults.

4. Adjudicating Authorities:

   • NCLT (National Company Law Tribunal) handles corporate insolvency cases.

   • DRT (Debt Recovery Tribunal) handles individual and partnership insolvency cases.

Corporate Insolvency Resolution Process (CIRP)

1. Triggering the Process: Default by a debtor allows creditors or the debtor to initiate CIRP.

2. Moratorium: Once admitted, all legal actions against the company are stayed, protecting assets from seizure.

3. Committee of Creditors (CoC): Formed to approve or reject resolution plans.

4. Resolution or Liquidation:

   • If a viable resolution plan is approved, the business continues under new terms.

   • If no plan is feasible, the company proceeds to liquidation.

Key Achievements of IBC

• Recoveries: By late 2025, IBC facilitated recovery of ?4.1 lakh crore for creditors.

• Company Rescue: Over 1,300 companies were successfully resolved.

• Pre-admission Settlements: More than 30,310 cases involving ?13.78 lakh crore were settled before CIRP admission, showing a behavioral shift among promoters.

• Recovery Efficiency: Average recovery of 170% of liquidation value has helped reduce bank NPAs to 2.3%, improving financial sector health.

• Banking Sector Impact: IBC accounted for 52.3% of total recoveries by Scheduled Commercial Banks, amounting to ?54,528 crore out of ?1.04 lakh crore recovered.

Critical Challenges Facing IBC

1. Prolonged Resolution Delays: Despite the 330-day CIRP mandate, average resolution exceeds 700 days due to overburdened NCLT benches and litigation.

2. Erosion of Asset Value: Delays reduce asset value, resulting in suboptimal recoveries (32–36%) and high haircuts (up to 80–95%) for creditors.

3. Judicial and Infrastructure Constraints:

   • Frivolous litigation by promoters delays CoC decisions.

   • Shortage of technical members at NCLT leads to admission delays.

4. Underutilization of Specialized Schemes: Pre-packaged Insolvency Resolution Process (PIRP) for MSMEs is largely ineffective.

5. Preference for Liquidation Over Resolution: Many companies are liquidated prematurely, reducing their going concern value.

6. Inter-Creditor Disputes: Conflicts between secured and unsecured creditors or operational creditors prolong litigation.

7. Waterfall Mechanism Issues: Though it dictates the priority of proceeds distribution, delays and disputes often hinder timely distribution to stakeholders.

Conclusion

The IBC, 2016 is a transformative law that has strengthened credit discipline, improved bank recovery rates, and enhanced business rescue mechanisms.
However, challenges like delays, litigation, and underutilized resolution schemes must be addressed to realize its full potential in improving the financial ecosystem and supporting economic growth.