Why do Indians lack the confidence to solve their country's problems? Is it that difficult to form groups and collectively solve problems? Why does it seem so easy in the game "Age of empires" to build an empire and develop it but in real life people don't seem to have any clue about what to do?

You are assuming (I think) groups of people coming together with strong former group identities will be able to act as objectively as people who are entering a nation-group from a position of no former strong affiliation.  People do form groups and solve problems, but there are different religious groups, different language groups, different levels of prosperity and so forth all strongly identifying with others of their ilk and who are not prone to give up cherished beliefs to make a single thought group.  To an outsider, having a single common language seems like a no-brainer, but to a member of a subgroup, that only is acceptable if the single language is its own.  The democracy I live in started with a fairly clean slate (since they just ousted the other folks living here), but in many other lands, colonial boundaries shoved together ancient peoples with strong cultural norms which would probably never have chosen to live in a single nation.  When you make an artificial construct like a game, you can impose your own presumptions on the 'people' in your land.  But people are fractious, ornery, and usually truly believe in their own way.  Even here, where people were pretty much the same in many ways we had a terrible civil war when one group thought they were right and the other group was wrong.  In a game, one way may BE right, but in life as many people might believe one way is right as deeply as others will believe a different way is right.  India, in my outsider opinion, has done rather well with the conditions it found when independence arrived (just look at some other lands in the neighborhood).  If and when more people identify first as Indians and only secondly as whatever other groups they are a part of, I believe things will improve.

In your game you are controlling every single villager and soldier. introduce democracy in the game and let the units choose their actions, your game will crash