A great churning

Reforms are needed to pave the way for the exit of weak firms so that labour and capital can move to healthy ones

Illustration by Ajay Mohanty

Illustration by Ajay Mohanty

Ajay Shah
High- and low-productivity firms manage to coexist in India when low-productivity firms cheat on compliance. To the extent that a sound GST improves compliance, many low-productivity firms will exit. A sound GST will also disrupt many vertically integrated firms and we will see more trades between specialised industries. The banking crisis has slowed the traditional ways of ever-greening, which keeps zombie firms aloft. RBI reforms, the Insolvency and Bankruptcy Code (IBC), and the resolution corporation will help shift capital from weak firms to healthy firms. These factors suggest that a large restructuring of the economy is underway. This is a daunting scale of churning in the economy. Done right, this will give a new wave of GDP growth. Implementation teams
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

First Published: Sep 17 2017 | 10:43 PM IST

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