All Things Policy Understanding Exit Barriers in India
Nov 25, 2025
Dr. Shoumitro Chatterjee, an expert on firm dynamics and co-author of 'No Country for Dying Firms,' discusses the complex world of exit barriers in India. He breaks down how these barriers, intended to protect jobs, can stifle economic productivity by preventing new firm entry. The conversation explores regulatory and political factors causing delays in closures, the economic implications of trapped resources, and the need for thoughtful policy reform to balance labor protections with encouraging firm exits.
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Exit Barriers Reduce Entry And Trap Resources
- Exit barriers act like entry barriers by lowering firms' expected lifetime profits and deterring entry.
- They also trap resources in low-productivity firms, reducing aggregate productivity and growth.
Regulatory Delays Greatly Prolong Closures
- Regulatory clearances alone can delay voluntary firm closure by around four years in India.
- That delay far exceeds advanced-country norms of six to twelve months and raises exit costs significantly.
Nokia's Prolonged Exit From India
- The Nokia India case took six to seven years amid tax disputes and penalties, stalling effective exit.
- Microsoft left the factory idle while legal uncertainty prevented firing and liquidation.
