Financing India's Future Growth Is a Challenge That Must Be Met

Policy should aim to boost private investments and deepen a corporate bond market in need of long-horizon participants

- Rajiv Memani

The robust economic growth of the past few years has placed India in a strong position to fulfill its aspiration to be a developed country by 2047, the year Independent India turns 100. Apart from human capital, which we have in abundance, the country will also need to ensure that it has the required financial capital needed to grow at a real rate of 7%-7.5% per annum to reach this goal.

Many sectors of the economy will require high levels of capital during this period. The investment requirements of the National Infrastructure Pipeline (NIP) alone are estimated to be $1.3 trillion. The Economic Survey estimates that our energy transition journey will need $250 billion annually till 2047. MSMEs will require $1.5 trillion to scale up and achieve a digital transformation, of which only a fraction is available from the formal sector. The chief economic advisor estimates that India's gross fixed capital formation needs to go up from the current 28% of GDP to at least 35% on a sustained basis.

Much of the recent years' economic growth has been powered by increased capital expenditure by both the Union and state governments; combined, it has risen from 3.6% of GDP in 2019-20 to 5.6% in 2023-24. Much of this capital spending has been on infrastructure—budgetary support accounts for 40-45% of total infrastructure spending. However, given the need for fiscal consolidation of government finances, there is limited room for expanding public investment at such a large scale. The private sector will need to play a bigger role in the future.