The Economic Survey 2025–26 has flagged serious concerns over delays in India’s insolvency resolution framework, warning that recovery timelines have stretched far beyond statutory limits. At the current rate of case disposal, it could take almost a decade to clear the existing backlog under the insolvency system.
While acknowledging that the Insolvency and Bankruptcy Code (IBC) has improved credit discipline, reduced non-performing assets in banks, and brought predictability to outcomes, the Survey highlights severe implementation bottlenecks—especially for micro, small and medium enterprises (MSMEs).
A key concern is the poor uptake of the Pre-Packaged Insolvency Resolution Process (PPIRP) for MSMEs. Introduced in 2021 as a post-pandemic relief mechanism, the framework was designed as a fast-track option where debt restructuring is negotiated in advance between the borrower and lenders, followed by approval from the National Company Law Tribunal (NCLT). Despite this intent, only 14 cases have been admitted in the last four years.
The Survey attributes this failure to multiple factors: complex procedures unsuitable for small businesses, low awareness among MSME promoters and lenders, lack of trust in promoter-led resolutions, and the high cost of the insolvency process. Additionally, stressed MSMEs often lack the financial capacity to sustain even a supposedly simplified insolvency route.
Under the current pre-pack system, MSME promoters are allowed to continue managing operations under the supervision of a resolution professional. However, eligibility is limited to defaults between ₹10 lakh and ₹1 crore, and approval from at least 66% of financial creditors is mandatory. Though the law mandates completion within 120 days, delays remain common.
Legal experts have called for deeper structural reforms rather than minor tweaks. Suggestions include appointing more NCLT members with commercial expertise, strengthening tribunal registries, creating MSME-specific insolvency processes with minimal court intervention, and improving coordination among regulators to reduce procedural delays.
The Survey also underlines capacity constraints in the insolvency ecosystem. As of March 2025, the NCLT faces a backlog of nearly 30,600 cases, with only 30 benches nationwide. Moreover, less than half of the registered resolution professionals are currently active—further slowing the process.
The findings signal an urgent need to redesign insolvency mechanisms for MSMEs, ensuring faster resolution, lower costs, and greater confidence among lenders and entrepreneurs alike.
