India Inc’s survival rate
SURVIVAL OF COMPANIES
Nearly 55% of new companies formed in the country perish or become dormant. The 45% that survive, stay in business for more than 20 years. India Inc’s survival stats were analysed by examining more than a million firms registered between 1981 and 2011 and their status of activity as on December 31, 2015. The study was conducted by Rajeswari Sengupta and Manish Singh of the Indira Gandhi Institute of Development Research using ministry of corporate affairs data. Here are the key findings.
THE MOST ROBUST
Globally, it is believed that not many new firms survive beyond 5 years. In the US, for instance, the survival rate of new firms after six years was found to be around 40%. But the Indian data shows that on average, new firms have a higher survival rate here around 45% after liberalisation. In the pre-liberalisation period (1981-1990), the survival rate was 41%
YOUNGER AND STRONGER
The data set shows that firms formed since the 2000 have a higher likelihood of survival compared to those set up earlier. Survival rate also improves for firms born in recent years.
WEST AND SOUTH LEAD
Of the 1,022,174 active companies on the MCA list as of December 31, 2015, the highest number of firms are in Maharashtra and West Bengal. The rest are concentrated in Gujarat and the southern states
NEW FIRM FORMATION
On average, 45,600 new firms are registered every year in India, according to a wider data set of the period between 1980 and 2018. The formation of new companies grew at an average annual rate of 7.5% during the 40-year period
GOLDEN ERA FOR NEWBIES
The period between 2010 and 2018 saw a 42% growth in the formation of new companies. In 2012, for the first time, more than 100,000 firms were registered in India. However, this followed a sharp drop in 2013 and 2014 (11% and 14%, respectively). There was an uptick again between 2016 and 2018, when nearly 100,000 new companies came up.
DORMANT AND INACTIVE
On average, 20% of new companies set up between 1981 and 2002 remained dormant. Further, about 36% of the new firms formed before and after liberalisation (1991) had become inactive. But of the firms set up in recent years (2001-2011), only 15% had become inactive. Also, majority of the new firms appear to have become inactive voluntarily, since less than 2% got liquidated and only one company in the data set was classified as ‘default’, perhaps due to the lack of a bankruptcy resolution framework before 2016.