Context: The challenges in economic recovery requires investment in technological advancements that has slowed down in recent times.
Challenges to India’s economic recovery:
Dysfunctional banks and equity markets:
Despite sounder financial situation (improved debt ratios, provision coverage and return on capital and assets) banks are not able to lend, due to -
Defaulting nature of their potential borrowers;
Weak financial position of rest of the borrowers.
New issue market lacks vitality as the Securities and Exchange Board of India (SEBI) does not even issue summary statistics for it.
Dominance of real estate construction and trading: Real estate construction, trading and speculation are the largest economic sector accounting for over a sixth of GDP.
A sixth of its GDP comes from agriculture and three-tenths from the industry. Manufacturing produces even less value-added than agriculture.
While the banks have generously lent to the real estate in the past, they are unlikely to finance another boom, at least for the present.
Slow-down in technological advancement: India’s technological advancement is driven majorly by importing technology and human capital migration.
However, these technological advances are now stagnating in the US and Europe.
Historically, countries got rich by advancing technically, i.e. by learning to produce better things at lower prices like China. However, India failed to learn from China due to its complex nature.