'Business Is Hard In India' - How Foreign Businesses Are Turning Into 'Zombie Firms' Due Huge Exit Cost: Report

India has long marketed itself as one of the world’s most attractive investment destinations - a vast consumer base, a booming middle class, and an increasingly pro-manufacturing government. Yet for many global corporations, the challenge is not only about entering the Indian market, but also about leaving it when the economics no longer add up.General Motors’ drawn-out departure from India underscores this paradox. After investing over two decades and losing more than $1 billion, the US automaker found that winding down operations was more complex than setting them up. The saga highlights what the Wall Street Journal (WSJ) has called “one of India’s least-discussed business bottlenecks” - exit barriers.GM’s Rocky Road Out of IndiaGM stopped

selling cars in India in 2017 and announced in 2020 that it would shut its last factory in Pune. But the exit was anything but smooth.

• Labor pushback: Over 1,100 workers challenged GM’s severance package, filing lawsuits alleging violations. Courts even required GM to keep paying partial salaries until disputes were resolved.
• Failed sale to China’s Great Wall Motors: A potential deal collapsed when geopolitical tensions flared after the 2020 India-China border clash.
• Political resistance: State officials initially blocked GM’s closure request, urging the company to “absorb its losses and stage a comeback.”
• Union demands: Workers asked for lifetime benefits or job guarantees, pushing away potential buyers.

It took until late 2023 - nearly four years - for GM to finally secure approvals, settle lawsuits, and sell its plant to Hyundai.The Cost of Exit: A Global ComparisonExiting India isn’t just bureaucratically complex - it’s also unusually time-consuming:

• India: 4.3 years on average to fully close a factory.
• Singapore: 1 year.
• Germany: 15 months.
• U.K.: 1–2 years.

This structural drag explains why only 3% of Indian factories shut down annually - compared with 9% in the US , nearly 10% in China, and 17% in Vietnam. According to economists, the result is a swelling population of “zombie firms” - companies that absorb capital without meaningful productivity.

Why Exit Barriers Scare InvestorsAnalysts argue that India’s exit bottlenecks are as damaging as high tariffs or regulatory red tape. Shoumitro Chatterjee, a Johns Hopkins economist, notes that exit costs act as “an entry tax in disguise,” discouraging firms from ever entering in the first place.For multinational manufacturers, this risk looms especially large. Unlike IT services or digital firms that can scale down operations more easily, auto plants, heavy industry, and capital-intensive manufacturers face years of litigation if things go wrong.The WSJ observed that GM’s drawn-out exit has become a cautionary tale among boardrooms in Detroit, Seoul, and Tokyo - one that may influence where future billions in global manufacturing investment actually land.

The Ford Contrast: Why Some Exits WorkNot every company faces the same roadblocks. When Ford decided to close plants in 2021, Tata Motors stepped in to buy one of its Gujarat facilities, taking on all employees in the process. That deal proceeded quickly because a domestic buyer was willing to inherit worker liabilities.In Chennai, however, Ford faced union lawsuits trying to block closure. Unlike in GM’s case, Tamil Nadu’s state government openly backed Ford, easing the approval process and clearing the way for a restart of export production in 2024.Lesson: Government stance often determines whether a foreign company’s exit is prolonged or pragmatic.Policy Pressure: Why Fixing Exit Barriers Matters NowIndia is under growing external and internal pressure to make its business climate more predictable. With the US slapping 50% tariffs on Indian goods, and global capital seeking “China+1” alternatives, investors want reassurances that their risk exposure in India won’t become permanent entanglement.Domestic policymakers argue that streamlining exits doesn’t just serve foreign firms - it would also help Indian companies reallocate capital faster, foster competition, and prevent industries from stagnating under loss-making “zombie” plants.Analysts expect India will continue refining its insolvency and labor laws, but reforms will be politically sensitive. Job security remains a powerful issue for unions and local politicians, who resist being seen as enabling layoffs.For now, GM’s ordeal is a sobering reminder. For every foreign company weighing India’s promise as a manufacturing hub, the question isn’t just how do we start? - but also how do we leave if we must?India’s growth story is real, but so are its bottlenecks. For global businesses, the entry gates may be wide - but the exit doors remain narrow, slow, and expensive.