Financing India’s Growth: Journey to a $10 Trillion Economy

India aims to achieve a $10 trillion economy by 2047, but the key challenge is not how much capital can be mobilised, but how growth is financed in a durable, stable, and efficient way.

• The current reliance on short-term capital and weak project execution poses risks and limits sustainable growth.

Strategic Priorities For Fixing the Financial System

• Rebuild Long-Term Domestic Savings: 
  • Significance of domestic savings: Government balance sheets cannot expand indefinitely, and foreign capital is inherently volatile, making domestic savings the most reliable source of long-term financing.
  • Reality of savings in India: Household savings form the largest pool of financial resources in the economy, so any structural weakness here directly constrains investment capacity.
  • Data: Net household financial savings have fallen sharply to 5.3% of GDP, indicating a shrinking availability of patient capital (long-term, risk-tolerant investment that accepts delayed returns to support projects with high development or strategic value).
  • Problem of “bad” financialisation: Even as savings are declining, household debt has risen to over 40%, showing that financial deepening is occurring through borrowing rather than saving.
  • Use of borrowed money: A significant share of borrowing finances consumption (such as phones and travel) rather than asset creation, which does not strengthen future income or capital formation.
  • Current investment trend: Household money is increasingly flowing into market-linked mutual funds and equities.
  • Missing link: What is lacking is adequate mobilisation of stable, long-term savings through pensions and insurance, which are essential for funding durable, long-gestation investments in the economy.
• Shift from Banks to Markets: 
  • Current status of banks: Indian banks are currently strong (low non-performing assets), but they face a structural limit in supporting long-term investment.
  • Asset–Liability Mismatch (ALM): Banks rely mainly on short-term deposits of 1–3 years, while sectors like infrastructure require long-term capital of 20–25 years, creating a persistent maturity mismatch.
  • Role of banks: Banks are best suited for working capital, retail lending, and financing micro, small and medium enterprises (MSMEs), rather than funding long-gestation infrastructure projects.
  • Need for a bond market: To meet long-term financing needs, there must be a shift toward market-based financing through corporate bonds.
  • Problems in the bond market: India’s bond market is shallow (small relative to GDP), concentrated (mainly accessible to AAA-rated firms), and illiquid (low secondary market trading), which limits its effectiveness as a financing channel.
  • Solution: Long-term, stable investors such as insurance funds and pension funds must play a larger role by investing in bonds, thereby providing patient capital suited to long-duration projects.
• Improve Capital Efficiency (ICOR):
  • About ICOR: ICOR stands for Incremental Capital Output Ratio, which measures how much additional capital is required to generate one extra unit of GDP.
  • India’s ICOR level: India’s ICOR lies between 4 and 5.5, which is considered high by international and historical standards.
  • What a high ICOR means: A high ICOR indicates that India is spending too much capital to achieve growth, reflecting inefficiency in converting investment into output.
  • How to improve efficiency: The largest gains in capital efficiency lie in better project execution rather than simply increasing investment volume.
  • Bottlenecks to remove: Key obstacles include slow approvals, unclear contracts, unpredictable regulations, and slow court dispute resolution, all of which delay projects and raise costs.
  • Impact if not addressed: If these constraints persist, higher investment will yield diminishing returns, and growth will remain constrained despite increased capital spending.
• Use Start-ups and Deep Tech:
  • Start-ups are not just about consumer apps: Start-ups should not be seen only as platforms for services like food delivery, but as drivers of technological and productivity transformation across the economy.
  • How start-ups drive growth: Technology-driven firms can bend the capital–output curve by generating higher output with less capital, thereby improving capital efficiency.
  • Impact on productivity: By using innovation and digital processes, tech firms raise total productivity, enabling faster growth without proportionate increases in investment.
  • Key sectors for impact: Start-ups and deep-tech enterprises are especially important in logistics, manufacturing, healthcare, and energy, where efficiency gains can significantly lower costs and improve service delivery.

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Conclusion

India’s $10 trillion goal by 2047 is achievable if growth shifts from quantity to quality through higher domestic savings, market-based long-term finance, efficient execution (lower ICOR), and start-up-led innovation.

• These four pillars are mutually reinforcing and together define a sustainable path to 2047.

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