THE FAILURE PENALTY: WHY INDIA'S ENTREPRENEURS DESERVE A SECOND CHANCE

IN MOST THRIVING ECONOMIES, failure in business is a badge of experience. In India, it can feel like a life sentence. India, the world's fastest-growing major economy, pulses with entrepreneurial zeal, from Coimbatore's family-run factories to Bengaluru's tech startups. Yet, when ventures falter, the ecosystem turns hostile, treating failure as a moral failing rather than a natural part of innovation.

- By Vikas Singh

This mindset, entrenched in institutions and amplified by social stigma, imposes a steep economic cost. The fallout is severe - reputational damage, financial ruin, and, tragically, lives lost.

Path to Resilience

India's ecosystem for business failures often feels unduly harsh. While combating fraud, its broad enforcement risks conflating genuine business distress with deliberate misconduct. This punitive approach, including preemptive account freezes by banks, disproportionately harms honest entrepreneurs, stifling viable turnarounds and paralysing firms with viable recovery paths through cascading penalties.

Though intended to curb fraud and prevent capital flight, these actions frequently undermine legitimate businesses and chill economic dynamism.

While India has undeniably faced its share of corporate swindlers, combating a history of corporate fraud and the risk of moral hazard remains critical. However, India's broad-brush approach often unjustly penalises honest entrepreneurs, thereby suffocating genuine innovation and undermining the entire ecosystem. The grounding of Jet Airways in April 2019 under significant debt exemplifies this systemic flaw. Its Insolvency and Bankruptcy Code (IBC) process was mired in over five years of legal disputes, creditor conflicts, and compliance delays, ultimately culminating in a Supreme Court-ordered liquidation in November 2024. This protracted process led to thousands of jobs lost, billions in eroded economic value, and a dent in investor confidence, starkly underscoring the urgent need for reforms to prevent such prolonged insolvencies.