India's Economic Growth Ambition
India aims to become a $7-10 trillion economy in the next decade and a developed economy by 2047. The focus is on financing this growth sustainably. The key risk is the reliance on short-term capital and execution frictions.
Key Priorities for Economic Growth
- Rebuild Long-term Domestic Savings
- Binding Constraint: India's growth relies on domestic savings.
- Government and foreign capital have limitations due to volatility.
- Household savings at a multi-decade low of around 5.3% of GDP in FY2023.
- Household debt exceeds 40%, focusing more on consumption rather than asset creation.
- Shift Long-tenor Financing from Banks to Markets
- Banks are suitable for short- to medium-term financing, not long-term infrastructure.
- Corporate bond market: Expanded but remains shallow; needs deeper market development.
- Increased role for pensions and insurance is crucial for long-term growth.
- Improve Capital Efficiency
- High Incremental Capital-Output Ratio (ICOR) of 4-5.5 increases pressure on savings.
- Focus on better project execution, faster approvals, and predictable regulation.
- Leverage Start-ups and Deep Tech
- Start-ups can generate higher output with lower capital intensity.
- Emphasis on tech-driven efficiency in sectors like logistics, healthcare, and energy.
- Requires patient capital, stronger industry-academia linkages, and supportive policy frameworks.
Conclusion
India's growth strategy emphasizes on quality over quantity of financing. Rebuilding savings, market-based financing, improving capital efficiency, and leveraging start-ups form the backbone of India's growth vision for 2047.
