View: Zombie firms are rising up again in India
corporate zombification has once again been on an upward trend globally, says a recent study by Bruno Albuquerque and Roshan Iyer at the International Monetary Fund. This, the researchers say, leads to “congestion effects.” Healthy firms experience lower investment, employment and productivity growth as unviable rivals waste resources.
Better-quality enterprises also suffer faster exits, and new entrants are slower to arrive.
“Zombie firms may cast a long shadow on the economy,” the IMF economists conclude.
That shadow crept up on India a decade ago. In 2012, Credit Suisse Group AG — which, as irony would have it, has itself gotten swallowed up by UBS Group AG — wrote an influential report about the country’s most indebted companies, titled “House of Debt.” As the house burned, and flames threatened to singe the banking system, India rustled up modern bankruptcy legislation in 2016.
The monetary authority embarked on a controversial campaign to turn off life support for businesses that were too bloated and unprofitable to survive in the normal course.
However, Covid-19 changed everything. Like in many other countries, the government came in with an emergency credit guarantee for failing firms, allowing lenders to regain their footing.
Post-pandemic shortages and the war in Ukraine boosted inflation and interest rates and shored up banks’ profitability. The focus on zombies went away.
So much so that instead of being swiftly dispatched to corporate-obituary pages, they are once again being allowed to roam indefinitely in the twilight zone, as a source of easy revenue and cheap talent for their healthy rivals.
Take Vodafone Group Plc’s India joint venture with cement-and-aluminum tycoon Kumar Mangalam Birla. As of June 30,
