India has begun work on a universal debt relief scheme for small borrowers aimed at micro enterprises, small farmers and artisans, which should be ready for implementation when the next government is in place.
Individuals below a specified income and asset threshold will be eligible for debt relief. People with annual income of Rs 60,000 or less, outstanding loans of Rs 35,000 or less, and assets worth Rs 20,000 or less may be eligible.
“This will be a well-structured loan waiver programme across sectors for small farmers, artisans, microenterprises or other individuals,” corporate affairs secretary Injeti Srinivas told ET. “It will be a universal debt relief scheme for the poor.”
The scheme, which is being worked on by the Ministry of Corporate Affairs (MCA), will be one of the key features of changes being considered to the Insolvency and Bankruptcy Code (IBC). The cost of the scheme is unlikely to exceed Rs 20,000 crore, but will benefit millions in the very small-ticket loan category, Srinivas said.
Srinivas pointed that the IBC does not provide any special dispensation for small borrowers and the personal insolvency chapter requires some amendments.
“There are people who are genuinely poor and the law as it stands today provides the process (for them) is as rigorous as corporate insolvency resolution process,” he said. “In this category now you will have millions and millions of people coming in… No system will be able to deliver.” The corporate affairs ministry is confident of finalising the scheme in a quarter, keeping it ready for the next government to roll out, he said.
It could be an online system within the Insolvency and Bankruptcy Board of India (IBBI) with a dedicated team to examine and take a call on applications. “We may create a personal insolvency cell or division in IBBI to handle debt relief only,” Srinivas said.
Flexibility to Opt Out
“If you can establish that your income is less than this (specified threshold) and assets are less than this (specified threshold) then by way of entitlement you will get debt relief and you can make a fresh start.”
The scheme will also allow for flexibility so that individuals can opt out to protect their credit history.
“We will allow a person who doesn’t want to avail the scheme to exempt himself because debt relief will actually put some stigma on you or restraint on taking future credit,” Srinivas said, underlining that individuals will have the option to opt for insolvency.
“In a case like Bhushan SteelNSE 0.00 %, we got Rs 34,000 crore, but even in this case there was a Rs 20,000 crore haircut,” he said. “That was for one corporate… There will be millions of people who will benefit from this scheme and maybe you will have a haircut of that sort.”