Zombie firms dampen effectiveness of monetary policy at margins: RBI study

These firms account for 10% of bank credit in India, shows the study

Zombies a.k.a perpetually loss-making firms in India seem to have dampened the effectiveness of monetary policy at the margin as they use borrowed resources more for their survival than for undertaking new investment, according to a RBI study.

The monetary policy does not hinder the creative destruction process by misallocating credit flows to zombies during periods of economic slowdown, showed a study by officers of Reserve Bank of India. It has been published in RBI’s bulletin for February 2022.

In India, zombie firms are estimated to account for about 10 per cent of total debt of the non-financial corporate sector.