Fixing the Nuts-and-Bolts of the Economy

Process reforms can improve the administration of India’s voluntary company liquidation pathways.

Economic reform debates usually gravitate toward the big reforms. Reforms—such as tax system overhauls, free trade agreements, and major privatization—usually dominate headlines. These reforms are structural, which make changes to the underlying framework of an economy. Although such reforms are important, they overlook a quieter but equally powerful source of improvement, which we call “process reforms.”

Process reforms are the nuts-and-bolts reforms, often microeconomic in nature, with a specific focus on an individual sector or issue. They are achieved by fixing routine administrative procedures, workflows, regulations and—in some cases—legislation. Individually, these reforms may appear small or technical, but collectively, they can dramatically improve efficiency, reduce costs, and improve the ease of doing business and the ease of living.

In the public sector, processes often evolve incrementally over decades. New rules are layered on top of old ones, exceptions are added, and responsibilities are fragmented across agencies. Rarely is the entire process re-examined from its first principles. This issue leads either to very complex systems or, in some cases, systems that may have made sense at one point in time but are no longer fit for their purpose. This concern happens in private businesses too, but at least business process re-engineering is a well-established field. Strangely, such discussion about government or public policy is largely missing in academic literature or even policy debates.

Process mapping is the foundation of effective process reform. It involves documenting the “as-is” process—the end-to-end flow of a procedure. This exercise often reveals surprising insights, such as multiple agencies performing overlapping checks, processes moving sequentially when they could move in parallel, or certain steps that may exist solely because they were needed in the past but are not relevant now. Importantly, mapping also helps policymakers understand the real experience of users—businesses or citizens—rather than relying on assumptions. Only when mapped can issues in the processes be resolved.

The good news is that there has been a systemic focus on process reforms across sector in the past few years in India. Some examples are the overhaul of the intellectual property rights ecosystem, regulations for the information technology-enabled sector, and so on. In fact, India’s recent outperformance is owed in no small part to such process reforms.

One such case stands out: the voluntary liquidation of companies in India. This process relates to shutting down a company voluntarily, not due to insolvency or bankruptcy. It could be due to personal reasons, profitability, changes in technology, and so on. In fact, voluntary closures by far account for the majority of closures. Therefore, it is even more important to have a smooth voluntary exit process than a smooth process for involuntary, insolvency-caused exits.

In general, voluntary liquidation should be a straightforward exit mechanism for solvent companies that wish to close operations. In India, there are currently two mechanisms of voluntary liquidation. One is under the Insolvency and Bankruptcy Code, and other is under the Companies Act. We focus only on the route under the Companies Act, as a vast majority of the cases are routed through it. Companies that have no pending litigation against them and have extinguished all assets and liabilities are eligible to apply for voluntary liquidation via this route. Hence, it is reasonable to expect that this should be a relatively fast process. Even then, the process was complicated and time-consuming until recently.

We identified this issue for the first time in a 2021 Economic Survey followed by an analytical paper.

From 2021 to 2022, it took 499 days on average to close a company. Granular details were even more stark. Of the total cases disposed of from 2020 to 2021, about 4 percent had taken less than 90 days, and 19 percent were approved between 90 to 360 days. The bulk of the cases took more than a year—with about 63 percent getting disposed of between 361 to 720 days and the rest taking even longer. This timeline is for companies that have no liabilities to any regulatory body, business supplier, or worker, and have no pending litigation. The fact that it used to take so long was detrimental to ease of doing business.

Process mapping revealed that the problem was not regulation-based but mostly administrative. The first issue was that the registrars of companies—offices that hold records of registered companies to ensure they comply with Companies Act requirements—used to take a very long time to publish notices of closure. Publication is a necessary requirement to inform the public about closure in case there is an outstanding liability. Second, there were no fixed timelines for each step. Third, there was lack of standardization of documents to be submitted, which meant that documents needed to be resubmitted for any inconsistency in the notarization or for other problem, causing delays. Finally, there were delays in getting a response from external departments and regulators.

Among these delays, a very large part of the delay was due to notices not being published on time. So, to begin with, we resolved the key issue with notices being published weekly or every other week. This change itself reduced the average time of disposal of applications from 499 days to 195 days during the period of 2022 to 2023. In addition, 94 percent of applications were being disposed of in less than a year now.

Next, India’s Finance Minister, Nirmala Sitharaman, announced the creation of a program with the aim of expediting voluntary company closure. This program is a centralized system for companies, external regulators, and registrars of companies. At that time, the goal was to reduce the time it takes to close a company to less than six months.

The new system is transparent with no requirement to submit physical documents or visit any government office to close a company This program fixes timelines for each step, identifies and designates nodal officers from each department to perform a set task, and limits the number of resubmission requests by registrars of companies to only two. The entire process of publishing the notices has also been streamlined with the publications happening weekly or every other week.

In the first year of the program’s existence, the average time taken for striking off cases reduced to only 90 days—from 499 days during the period from 2021 to 2022—an 82 percent reduction. The average time taken further reduced to 60 days in during the period from 2024 to 2025.

The above process reform is a good example of how a system can be made better with just systematic mapping of process and resolving bottlenecks. This reform has been done in various other areas in India as well with equally dramatic results.

As India continues its reform journey, greater attention to process reforms have the potential to yield high returns at relatively very low cost. Structural reforms will always matter, but without efficient processes, even the best policies risk falling short.