IMF Flags Zombie Firms and IBC Gaps in India
Why in the news
The IMF’s staff report on India flagged weak business dynamism, zombie firms and insolvency resolution gaps, including in the IBC Amendment Bill.
Key facts
- Zombie firms keep operating but cannot cover interest for long periods; 15% of continuously operating firms qualify, with low productivity.
- Causes: forbearance lending, inefficient insolvency resolution, few exit routes.
- Entry and exit rates below 1%, versus 8-13% in the US, Europe, Korea and Chile; compliance burdens partly explain low entry.
Insolvency data
| Indicator | Earlier | Later |
|---|---|---|
| Financial creditor recovery | 43% (March 2019) | 33% (June 2025) |
| Operational creditor pre-admission wait | 450 days (2019) | 650 days (2022) |
IBC Amendment Bill gaps
- Operational creditors still cannot vote on resolution plans.
- No rules on executory contracts, limiting restructuring instead of outright sale.
IMF recommendations
- Dedicated tribunal benches with adequate funding; operationalise the personal insolvency regime.
- Steer credit toward high-productivity firms.