Opinion To become a developed economy by 2047, four reforms for India
India’s growth ambition is achievable if financing shifts from a focus on quantity to an emphasis on quality. Rebuilding domestic savings, shifting long-term financing toward markets, improving capital efficiency, and leveraging startups are parallel and mutually reinforcing priorities
The debate is often framed as a question of how much capital India can mobilise. That framing is incomplete. India’s ambition to become a $7-10 trillion economy over the next decade and a developed economy by 2047 is now central to the economic agenda. The key question is how to finance this growth in a durable, stable and efficient way.
The debate is often framed as a question of how much capital India can mobilise. That framing is incomplete. The central risk in India’s growth strategy is dependence on short-term capital combined with persistent execution frictions. Four priorities stand out.
First, rebuild long-term domestic savings. This is the binding constraint. India’s growth model ultimately rests on domestic savings. Government balance sheets cannot expand indefinitely, banks are structurally unsuited to long-tenor financing, and foreign capital is volatile. Household savings remain the largest component of India’s savings pool, but recent trends are worrying. Net household financial savings reached a multi-decade low of around 5.3 per cent of GDP in FY2023, while household debt has risen to over 40 per cent. Borrowing is increasingly financing consumption, housing, and education rather than long-term asset creation.
While financialisation has increased through mutual funds and equities, this has not compensated for the decline in stable, long-term savings flowing into pensions, insurance, and debt instruments. Long-term growth cannot be financed sustainably through leverage or public balance sheets alone. Rebuilding domestic savings is the foundation on which all other financing strategies rest.
Second, shift long-tenor financing from banks to markets. India’s banking system is in its strongest position in over a decade. But banks’ liabilities are short- to medium-term deposits, while growth requires long-gestation capital. Banks are well suited to working capital, retail credit, and MSMEs. They cannot be the primary financiers of infrastructure and manufacturing. Market-based financing is therefore essential. India’s corporate bond market has expanded significantly, but remains shallow relative to the GDP, concentrated in highly rated issuers, and dominated by private placements. Secondary market liquidity is limited, retail participation is low, and long-term institutional investors are cautious about longer-tenor and lower-rated bonds. Alternative investment funds have emerged as providers of patient capital, but scale remains constrained by governance, liquidity, and incentive-alignment issues. Deepening bond markets and expanding the role of pensions and insurance matter more for long-term growth than incremental banking reforms.
Third, improve capital efficiency. With an incremental capital-output ratio of roughly 4-5.5, sustaining high growth places pressure on savings and fiscal resources. Improving capital efficiency is therefore a first-order growth strategy. The largest gains lie in project execution. Faster approvals, clearer contracts, predictable regulation, and quicker dispute resolution reduce the capital required to sustain growth. Without this, higher investment will deliver diminishing returns.
Fourth, use start-ups and deep tech to bend the capital-output curve. The macroeconomic role of India’s start-up ecosystem is underappreciated. Technology-driven and knowledge-intensive firms can generate higher output with lower capital intensity, raising productivity. The real opportunity lies in start-ups and deep-tech firms that improve efficiency across logistics, manufacturing, healthcare, energy, and public services. Supporting these sectors requires patient risk capital, longer investment horizons and stronger industry-academia linkages, and policy frameworks that recognise longer gestation periods.
India’s growth ambition is achievable if financing shifts from a focus on quantity to quality. Rebuilding domestic savings, shifting long-term financing toward markets, improving capital efficiency, and leveraging start-ups are parallel and mutually reinforcing priorities. Together, they form the backbone of the next reform agenda and are central to India’s 2047 vision.
The writer headed Crisil and ONI
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