Capital intensity and labour-augmenting technology in India's post-bankruptcy reform era

Abstract

This paper analyses the impact of the Insolvency and Bankruptcy Code, 2016 on the degree of capital intensity employed by Indian firms, while controlling for financial factors such as leverage, collateral, and cash flow using a rich Indian firm-level dataset. Since the introduction of bankruptcy law reform creates a supply-demand friction in credit supply, with lenders more willing to lend, at lower rates, while borrowers become more hesitant to take on debt, we attempt to resolve this inconsistency by introducing a macroeconomic perspective. This paper put forth the importance of considering the impact of labour-augmenting technology as a key factor in improving the marginal productivity of the workforce, which radically changes our interpretation of the financing decisions made by Indian firms. We also attempt to look beyond bankruptcy reform, and briefly touch upon the essential need for upskilling of the workforce as key determinant of India 's continued economic growth.