The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
This paper uses firm-level data to examine the performance of India's nonfinancial corporate sector since 1989 and evaluate its financial vulnerabilities. While promising trends in liquidity, profitability, and leverage of the sector emerged in the early 1990s, they experienced a reversal after 1996. Nonetheless, most indicators were still at comfortable levels, and there is evidence of improvement in 2002, the last year in our sample. However, a number of firms still face problems servicing their debt obligations, posing a risk to lenders. In particular, the aggregate interest coverage of the corporate sector indicates that potential nonperforming loans of the corporate sector remain high. This underscores the need for close monitoring of the corporate sector in the future.