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Economic Survey 2021: Shortfall in equity, debt financing takes toll on Indian innovations

India and Brazil both rank very low in terms of equity and debt funding that goes into highly innovative projects.

January 29, 2021 / 09:33 PM IST

India and Brazil are lagging behind in their rankings with regard to equity and debt funding that goes into technology-led innovative projects, said the Economic Survey 2020-2021, released by the finance ministry on January 29.

“India and Brazil rank much below expectation for their level of equity market development in the overall GII, innovation outputs and innovation inputs amongst the top ten largest economies,” said the report.

GII stands for global innovation index.

Citing a research report, the Economic Survey said that countries which have a lot of high technology-intensive industries show higher levels of innovation backed by well-developed equity markets.

There could be multiple reasons for this, but the overall sense that the survey makes is that equity financing is ideal for long term investments in highly technologically innovating companies.

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Hence for Indian companies to attract a higher share of equity financing, there is a need for innovation to be highly technology-intensive, the report established.

The survey found that the same applied to debt financing as well. In terms of access to finance from local banks as well, both India and Brazil ranked much lower compared to the top 10 developed countries.

The reason for the shortfall in debt financing has been cited from multiple published papers, where the survey said that banks are usually risk averse while investing in highly innovative companies. Second, since these companies typically do not have any tangible asset to hold as a security, they fail to raise debt.
Pratik Bhakta
first published: Jan 29, 2021 09:33 pm

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