What are 'zombie firms' according to the IMF report on India?

Zombie firms are continuously operating companies that do not generate enough earnings to cover their interest expenses, often exhibiting very low productivity.

Why is business dynamism low in India, as per the IMF?

Low business dynamism in India stems from structural rigidities, high compliance levels, and inefficient insolvency and exit mechanisms.

What reforms does the IMF suggest for India's economy?

The IMF recommends reforms to improve credit allocation, strengthen the judicial capacity, and operationalize personal insolvency for better business environments.

Home / Business and Economy / IMF Warns: India's Business Entry Low

IMF Warns: India's Business Entry Low

27 Nov

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Summary

15% of Indian firms are 'zombie firms' with low productivity.
Business dynamism in India is marked by low entry and exit rates.
IMF urges reforms to improve credit allocation and business environment.

The International Monetary Fund (IMF) has raised significant concerns regarding India's economic landscape, particularly highlighting the persistence of 'zombie firms.' Approximately 15 percent of continuously operating Indian companies generate insufficient earnings to cover interest expenses, yet continue to function, often with severely limited productivity. This situation points to underlying issues within the financial sector and resolution mechanisms.

The IMF report also underscores a notable lack of business dynamism in India. The rates of new firm entry and business closures are reported to be exceptionally low, significantly trailing behind other major economies. This sluggishness is attributed to structural rigidities and high regulatory compliance burdens that deter new ventures and hinder efficient resource reallocation.

To address these challenges, the IMF has advised the Indian government to implement comprehensive reforms. These include improving credit allocation within the financial sector to direct resources towards more productive enterprises and strengthening the overall business environment. Enhancing judicial capacity and operationalizing personal insolvency regimes are also recommended to facilitate smoother business restructuring and exits.

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