The Broken System: How IBC, Banks & Bureaucracy Are Destroying India’s Manufacturing Entrepreneurs

India’s manufacturing sector contributes only 15–17% of GDP, compared to China’s 27%. Everyone talks about closing this gap. The government launches scheme after scheme — PLI, MSME incentives, Udyam registration, Make in India. On paper, they look wonderful. But ask any manufacturer who has actually tried to avail these schemes, and they will tell you about the caveats — the fine print that makes most of these benefits unreachable for the people who need them most.

The government has moved many processes online. That sounds progressive. But here is the truth that nobody wants to say openly: those online systems are still operated by the same people with the same mindset. The processes went digital, but the attitudes did not. The same bureaucrat who used to delay your file in a physical office now delays it in a digital queue. Cosmetic changes do not fix a broken culture.

If you have never run a factory in India, let me paint you the picture. You wake up worrying about labour compliance — not because you are violating anything, but because the inspector who visits your factory has the power to find fault with anything and everything. Then there is raw material procurement, where prices fluctuate wildly and supply chains remain unreliable. The daily followup for payments, orders, delayed payments and answering the suppliers, customers, employees. The Indian system of management where people don’t work in coordination and hide information. Then comes banking — for which we have to make the balance sheet which is positive only, with profit only, as if you show the losses the loan will be recalled immediately.

I built Su-Kam into a company valued at ₹300 crores that revolutionized the power backup industry in India. We were the first to export power electronic products from India, starting in 2003. We competed against Chinese and American companies in the Middle East and Africa — and won. Our products worked from sub-zero to 55-degree temperatures without air conditioning.

When the Insolvency and Bankruptcy Code (IBC) was implemented, it was done without creating proper systems to support it. The law was not ready, the infrastructure was not ready, and the people running the process were not ready. Yet they pushed it through. And then they kept changing the law every six months. How can any entrepreneur plan for the future when the rules of the game change before you have even finished learning the old ones?

The IBC was supposed to rehabilitate stressed companies and give entrepreneurs a new life. But in practice, it became the opposite — a tool for creditors to destroy stressed companies.

The Chinese government does not treat loans the way India does. In China, if a manufacturing company faces financial difficulty, the system works to keep the company alive. In India, we shut down factories to recover loans, destroy the brand, scatter the workforce, and then recover a fraction of the money.

China became the world’s manufacturing superpower not because they had better entrepreneurs than India — but because their system supported manufacturing entrepreneurs instead of working against them. In China, the executive and judiciary are aligned — they work as one system. In India, the executive and judiciary are separate, and they often pull in opposite directions.

No company can show losses to banks — because in India, losses are treated as a crime. The moment you show losses in your balance sheet, the bank will recall its money. But any business can go through cycles of profit and loss — this is normal everywhere in the world.

When a company is admitted to NCLT, the Resolution Professional (RP) takes over. The new people have no experience of running that specific company. Meanwhile, the existing experienced people start leaving one by one. The entrepreneur who built the company is sidelined. This creates a vacuum that nobody can fill.

Banks have no obligation to invest in the company after takeover to keep it running. The NCLT court should mandate investment to keep the company operational.

In the NCLT, there is no difference between a company with 10 employees and one with 10,000 employees. A manufacturing company with a recognized brand, patents, thousands of skilled workers, and export relationships — this has immense value for the nation. The IBC process ignores all of this.

The Committee of Creditors (COC) runs the company through the RP. They have no responsibility towards the company. They can sell it for any price — even for free. The COC is not required to follow any rules about preserving value. Meanwhile, the promoter who built the company is held liable for everything.

Once a company enters IBC, the entrepreneur is thrown to CBI, ED, and the Ministry of Corporate Affairs. From that point, they will never get a second chance at life. These entrepreneurs built organizations over decades — they have experience and knowledge equivalent to any senior IAS officer, politician, or banker. Yet they are destroyed by the stroke of one order.

When a company is taken over by NCLT, the interest on the loan continues to accumulate. The company is no longer in the entrepreneur’s control, but the interest meter keeps running against the personal guarantee. The personal guarantee liability should be limited to the amount determined by the valuation report, and the money recovered should be deducted.

In the United States, Chapter 11 bankruptcy allows the company to continue operating while restructuring its debts, and the existing management often stays in place. India’s IBC does the opposite — it removes the entrepreneur completely.

After 35 years of manufacturing, I would not advise my children or the children of my close friends to set up a factory in India. Not because manufacturing is not important — it is the backbone of any economy. But because the life of a manufacturer in India is incredibly tough, and the system is not designed to support you.

First, the promoter must be part of the valuation committee. Second, the promoter’s liability should be capped at the valuation determined at the start of the CIRP process. Third, recovery should be measured against the valuation of the company at the start of CIRP, not against the loan amount. Fourth, separate data must be published on manufacturing companies.

Read more: IBC Amendments — Who Do They Serve?

India does not need more schemes with clever names. India needs an attitude shift. I still believe in Indian manufacturing. I started Su-vastika after losing Su-Kam because I cannot stop building. But I will not pretend the path is easy.