India needs robust growth to meet the aspirations of its people. A sustained growth rate of 10% could potentially allow per capita income to increase up to eight times its current level, an incredible feat for a country of 1.4 billion people. We have seen the economic transformation of countries like Japan, South Korea and China, where they grew by more than 10% for three decades. Exports and investments were behind these high growth rates.

Such growth rates will require good fiscal health, a thriving manufacturing sector, liveable cities, skilled human capital and will be driven by private investment. Investment rates will need to increase to around 35% of gross domestic product. In turn, investment is financed by savings. Increasing domestic savings will be crucial to finance these additional investments. Improving fiscal health, as well as emphasis on formal job creation, will increase the reservoir of domestic savings.

Budget stability

In FY24, the combined fiscal deficit (Central and State States) stood at 8.6% of GDP and the combined debt-to-GDP ratio stood at 81.6%. Public deficits will decline in the coming years as the economy continues to grow. Tax-to-GDP ratios are improving, reaching around 18% last year. Capital spending has also almost doubled over the past decade, to 3.5% of GDP. Although these parameters have improved considerably since the peak impact of Covid-19, further fiscal consolidation is necessary. At the same time, the investment effort must be sustained in the years to come.

Annual net public borrowings increased from around Rs. 9 lakh crore in FY20 to around ₹18 lakh crore in FY24. Higher and sustained government borrowing can potentially lead to higher debt servicing costs by increasing benchmark bond yields. As these yields serve as a benchmark, this translates into a higher cost of borrowing for the rest of the economy. This is essentially what we call crowding out.

Improved government revenues will reduce the need for future borrowing. And it’s not necessarily about tax revenue. Non-tax revenues can also be strengthened. Monetization of assets and reduction of government stake in public sector units (PSUs) must be pursued. Although tax-to-GDP ratios will improve as the economy formalizes, a focus on manufacturing and exports can accelerate this process and widen the tax net. Labor-intensive manufacturing can create large-scale employment opportunities, injecting more resources into the direct tax net.

Manufacturing exports

Focusing on labor-intensive manufacturing and exports can also improve our current account. Our current account balance has almost always been in deficit, mainly due to our trade deficit in goods, but offset slightly by our trade surplus in services. Although production-linked incentive (PLI) programs are an interim solution, we must continue to address the cost disadvantages we face. The rules of the four labor codes should be notified at the earliest and harmonized across the Center and states. States must take the lead in introducing Ease of Doing Business (EoDB) reforms to reduce the cost of doing business. New momentum for EoDB at the state level is needed. Taking inspiration from mobile manufacturing, we must work with leading companies in areas such as textiles and clothing to boost employment and exports. The potential of food exports has not yet been fully exploited.

Sustainable urbanization

The 12 new industrial cities announced under the National Industrial Corridor Development Program (NICDP) will play an important role in making our manufacturing sector competitive. These industrial cities will offer world-class connectivity, plug and play facilities and align urban development with community needs, creating livable and productive cities. Building these new cities “ahead of demand” means they will be able to cope with exponential growth. Dholera, for example, is designed to be twice the size of New Delhi. Additionally, these cities will also relieve pressure on existing urban centers.

Human development

In addition to addressing supply-side issues related to infrastructure, concerted action is needed to address the shortage of skilled labor. To improve employability, education and vocational training programs must be industry-led. The recently announced internship program is a progressive step. Degree apprenticeships could be another route to take. Results-based funding models for skills development and vocational education can be considered. The Employment Linked Incentives (ELI) scheme should also be implemented at the earliest. Expanding women’s access to training in future growth areas such as computer hardware, electronic manufacturing, digital banking and finance will be crucial to increasing women’s workforce participation rates.

Private investments

Although much has been done, the efforts, as noted above, will boost private investment in the economy. Tapping domestic and international demand will lead to a sustained cycle of private sector-led growth in India. Our private sector must innovate and invest in R&D. A focus on quality is also crucial. Without careful attention to quality, we will not be able to access international markets. Even though a favorable environment has been created, our private sector must evolve from the status of national champion to that of global champion. In the same way, we need our small and medium-sized businesses to grow into big industries. We need 10,000 large companies by international standards, ready to compete in global markets. Likewise, innovation and private investment will also be crucial in the energy transition. Whether it is the processing of critical raw materials or green hydrogen, efforts must be led by the private sector.

If India wants to grow at a rate of 10%, several states will have to grow at over 10%.

We will need 12 champion states who will now take India’s growth forward. States such as Uttar Pradesh, Bihar, Chhattisgarh, Jharkhand, Rajasthan, Madhya Pradesh and Odisha are populous states with rich mineral resources. They will need to grow at a rapid pace to create jobs. These states must take the lead in implementing reforms, reducing their dependence on agriculture, making it easier to do business and modernizing their economies.

Amitabh Kant is India’s G20 Sherpa and former CEO of NITI Aayog. The opinions expressed are personal.