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Too much debt and misallocation of capital

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Ajay Shah writes ….Macroeconomic phenomena always have multi-dimensional explanations. One element of this story is an upsurge of fear. From 2002 to 2012, firms were presented with an environment of risk which they understood and could manage. The range of possibilities was known, and if bad things happened, one knew what to do. From 2012 onwards, things have started happening which were not on anybody’s radar. Further, even for old style problems, the old style remedies have stopped working. Firms are now faced with a new environment of stronger uncertainty and weaker tools for dealing with roadblocks. This has made firms fearful of investing

on top of that As Tamal Bandhopadhyay writes https://www.linkedin.com/pulse/why-indias-bad-loan-problem-really-tamal-bandyopadhyay In the aftermath of the collapse of iconic US investment bank Lehman Brothers Holdings Inc. in September 2008, growth collapsed in the world, but India was almost insulated from that with the government unveiling massive economic stimulus programmes. RBI cut its policy rates to a historic low and flooded the market with liquidity and banks gave loans indiscriminately. The “boom” lasted for a few quarters but the “bust” that followed has been continuing for years. Most banks and corporates misread the situation and the result of misallocation of capital.

So you have policy uncertainity as ajay shah writes and on top of that there is too much debt and misallocation of capital with corporate sector leading to NPA build up with banking sector hindering corporate capex recovery.

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