Many Indian firms need more leverage

Being near zero debt is often not optimal

Borrowing by large Indian firms has greatly subsided. While this makes managers of firms feel safe, it is not healthy for the Indian economy. Debt is a disciplining device, and it helps ensure that managers run hard, which is good for shareholders and society. Borrowing improves return on equity, which is good for shareholders. Indebted firms go bankrupt, which is part of Schumpeterian creative destruction. An economy where large firms have little debt runs the risk of being less dynamic. Shareholders and boards need to reopen the discussion on optimal firm leverage.

From the early days of economic reform, the Indian