From stability to strategy: India’s next growth challenge

India enters the road to Viksit Bharat @ 2047 with a rare asset in a volatile world: macroeconomic stability. In an era marked by repeated global shocks-pandemics, wars, financial tightening and climate stress-India has preserved growth, contained inflation and maintained fiscal discipline. That achievement is neither accidental nor trivial. It is the product of coordinated fiscal and monetary policy with institutional resilience.

The real question now is not whether India’s macro framework works-but how it can be repurposed from crisis management to long-term strategy. The discussions among economists and former policymakers make one thing clear: India appears to have moved into a phase where macroeconomic stability has strengthened. The next task is to convert that stability into sustained, inclusive and productivity-driven growth.

The growth-savings paradox

The consensus among experts suggests that for India to achieve its 2047 goals, it must sustain a real GDP growth rate of roughly 8 per cent for the next two decades. While the economy has shown remarkable resilience post-pandemic, current growth potential hovers between 6.5 per cent and 7 per cent. Bridging this gap is the primary challenge.

A central bottleneck is the investment rate. To hit the 8 per cent target, India likely needs an investment rate of approximately 35 per cent, yet the current figure stagnates around 30per cent. More concerning is the decline in domestic savings, which have dipped from historical highs of 32 per cent to roughly 30 per cent. Since India follows a savings-led growth model, the neglect of fiscal incentives for domestic resource mobilisation has become a binding constraint. The path to 2047 must prioritise a long-term fiscal strategy that explicitly targets a 3-4 per cent increase in domestic savings.

Looking beyond the deficit anchor

India’s response to recent crises has often been cited as a textbook example of effective fiscal-monetary coordination. However, the challenge now is less about how much the government spends and more about how it spends. The current fiscal strategy places heavy emphasis on public capital expenditure as a way to crowd in private investment. In theory, this makes sense. In practice, the results have been mixed. Evidence so far suggests that crowding-in remains limited: private capex is still cautious, capacity utilisation is stuck around 75 per cent, and returns on new investment remain modest. As long as excess capacity persists, firms have little incentive to expand aggressively. At the same time, the composition of fiscal spending continues to matter. Capital expenditure tends to support real GDP growth by expanding productive capacity, while revenue deficits-especially those driven by consumption-oriented spending-are more likely to stoke inflationary pressures. If India is serious about becoming a truly ‘Viksit’ economy, fiscal credibility cannot rest on debt targets alone. Structural rigidities, particularly in land and labour markets, must be addressed head-on.

The missing factor: Land reforms

One of the more unavoidable conclusions emerging from recent policy discussions is the centrality of land. Conventional economic models focus on capital and labour as the primary inputs of growth. In India’s case, land has quietly become the binding constraint-especially for manufacturing. The difficulty of moving land from agriculture to industry, combined with unclear titles, fragmented records and prolonged litigation, has raised costs and uncertainty for investors. The regional divergence is telling. Southern and Western states attract disproportionately higher levels of FDI and private investment, in large part because land records, registration systems and dispute resolution mechanisms function better.

This raises a practical idea: land record modernisation should be embedded into fiscal federalism itself. Linking improvements in land administration to state-level fiscal incentives or tax devolution could provide the nudge needed to unlock manufacturing-led growth without imposing a uniform model across vastly different states.

Addressing the dual economy

Perhaps the most sobering feature of India’s growth story is the widening gap between the formal and informal economies. Large firms are becoming increasingly oligopolistic, often prioritising market power and margins over expansion in employment. Meanwhile, MSMEs and unincorporated enterprises-the real backbone of job creation-are barely getting by, registering only modest nominal growth.

Even more worrying is the growing informalisation within the formal sector itself. Organised manufacturing may be expanding in output terms, but invested capital per worker remains low, signalling weak capital deepening. This helps explain why employment growth has lagged output growth and why wage gains remain limited.

Without targeted interventions-such as dedicated and patient credit channels for MSMEs, alongside a broader shift from trading-led activity to entrepreneurship and production-the gains from growth will remain concentrated at the top. Left unaddressed, this dualism risks undermining both social cohesion and long-term demand.

The sustainability imperative

Looking ahead to 2047, growth and environmental sustainability cannot be treated as separate agendas. Decarbonisation is no longer a luxury or a future concern; it is a prerequisite for durable growth.

Fiscal policy must therefore evolve to recognise and reward ecological services provided by states-especially in environmentally sensitive regions such as the Northeast. Forest cover, biodiversity preservation and watershed protection generate national public goods, yet the fiscal costs are borne locally. A one-size-fits-all model of competitive federalism, focused narrowly on industrial expansion, risks penalising precisely those states that are safeguarding long-term national resilience.

Towards a unified macro framework

Reaching 2047 will require treating macroeconomic coordination itself as a public good. Fiscal and monetary policies can no longer operate in silos, nor can stability be pursued in isolation from growth and employment.

What is needed is a unified strategy-one that closes the savings-investment gap, integrates land reforms into the fiscal architecture, and allows monetary policy to evolve towards a more flexible, growth-aware mandate without sacrificing credibility. Stability remains the foundation, but it cannot substitute for structural transformation.

Viksit Bharat is not a fixed endpoint; it is a long policy journey. Success will depend on balancing equity, sustainability and high growth, while recognising that innovation and inclusive resource management — not headline numbers alone-will determine whether India truly meets its centenary ambitions.

The writer is a Research Consultant at the Centre for Economy and Trade, Chintan Research Foundation; views are personal