“It’s hard to start a business in India, but it’s even harder to exit,” the Wall Street Journal reported Thursday, citing the difficulties global companies face in India, it also includes how to exit if things don’t work out.
The report cites the experience of General Motors of the US, which took several years to get out of the Indian market, where it stopped selling cars in 2017 but largely 2024 its exit. In exiting India, GM had to deal with a series of employee compensation lawsuits and tax disputes. “We didn’t expect to get off to such a rocky start,” says Prajot Gaunkar, a former head of employee relations at GM India.
Figures cited in the report show that it takes an average of 4.3 years to close factories completely in India, a year in Singapore, 15 months in Germany and one to two years in the UK. The report said regulations make it difficult to lay off workers, that politicians are often reluctant to see investors leave and that courts may even rule the opposite on similar facts.
“Exit barriers are a key reason why India’s manufacturing sector is underdeveloped,” Shumitro Chatterjee, an assistant professor of international economics at Johns Hopkins University, was quoted as saying, “This is really the cost of entry and discourages potential business investment.”
According to the report, economists believe that the higher closing rate is a sign of the vitality of the business environment, that is, inefficient enterprises are eliminated. The Indian data tell a different story. According to a paper co-authored by Chatterji, Indian factory closures are prohibitively expensive, at just 3 per cent a year, one of the lowest rates in the world. That compares with more than 17 per cent in Vietnam, nearly 10 per cent in China and 9 per cent in the US. Analysing government data, Chatterji found that about 20 per cent of Indian manufacturers were “Zombie companies”, using capital but not production.