In the economic sphere, the defining feature of the 1990s was the emergence of the ‘net economy’ as technology enabled a whole host of new transactions both globally and within economies.
What I will argue is that the frenetic pace of technological change in digital technology and its impact on the services sector has led to a disconnect between the real and financial economies, which finds expression in stock markets.
In India, this has found expression in the boom of service-sector ‘unicorns’, like Grofers, Droom, Zomato and others in diverse sectors from automobiles to food.
But the implicit assumption is the existence of such a market and perfect information on the part of both buyers and sellers.
If I can collect all information on the demand and supply of used cars and match them at one price while assuring quality, I would solve the famous ‘lemons problem’; the nature of the transaction is such that the seller can never know precisely the exact quality of any car.
Typically, this is done by floating new shares in a booming stock market so the risk of business failure is passed on to shareholders, and the early investors can move on to the next idea.
As the Indian middle class rushes to move out of low-yielding bank financial assets, it may be advisable to watch out for ‘irrational exuberance’ in our stock markets.