Causes of impeded exit in India:

♤ Interests: The first, most obvious, and perhaps most powerful reason for lack of exit is the power of vested interests. Often, this vested interest problem is aggravated by a certain imbalance or asymmetry that confers greater power on concentrated producer interests in relation to diffused consumer interests. An example of interest groups blocking reforms is the introduction of JAM for MGNREGA. In case of administrative schemes, vested interests often create a market of their own, planning their actions to benefit from it. Thus, schemes may become an instrument of granting favours.

♤ Institutions: Another reason for impeded exit is institutions – both weak and strong institutions. Examples of weak institutions are legal procedures that increase the costs – time and financial costs – of exit. One example is the debt recovery tribunals (DRTs). On the other hand, strong investigative agencies are responsible for the tendency of risk-aversion in decision makers, perpetuating status quo and impeding exit. Ideas/ ideology: A third reason for impeded exit relates to ideas/ideology. In a democratic country like India with sizable poverty and inequality, it is very difficult to phase out entitlements/incentives.

To address the exit problem, the government must allow inefficient firms to exit through its direct policies and transparent actions. Recent initiatives like Bankruptcy Code, rehabilitation of stalled projects, changes in Prevention of Corruption Act etc. are steps in the right direction.