India's zombie firms dwindle as corporate debt servicing strengthens

India's corporate landscape is shedding an increasing number of zombie firms—companies that generate insufficient profits to service their debt obligations—signalling a strengthening financial position for businesses across the economy.

Zombie firms, defined as enterprises unable to cover interest expenses from operating earnings, have declined significantly over the past eight years. The reduction from 8.1% of firms in 2017 to 5.5% in 2025 suggests corporate India has substantially improved its ability to meet debt servicing requirements and maintain financial viability.

The downward trend reflects several positive developments in the corporate sector, including improved operational efficiency, better cost management, and stronger revenue generation amid economic growth. Companies have increasingly prioritised balance sheet strengthening and debt reduction, allowing a larger proportion of the business universe to achieve sustainable profitability levels.

The decline in zombie firms typically indicates reduced financial stress within the corporate sector and lower systemic risk to the broader economy. A healthier corporate base with stronger debt-servicing capacity provides greater resilience against external shocks and supports continued investment and employment growth.

The improvement comes as Indian businesses navigate a dynamic economic environment marked by digital transformation, infrastructure development, and evolving market competition.