India will need to save more, mobilize more private capital and allocate investment more efficiently to sustain the 7-8% growth needed for the Viksit Bharat goal, former finance commission chairman N.K. Singh said on Friday. He also called for closer fiscal coordination between the Centre and states as India enters what he described as an “inflexion point”.
Gross domestic savings, combining households, the private sector and government, are currently around 34% of GDP, Singh said, arguing that India should raise the rate to 38-40% of GDP, around its historical peak, to support the investment required for its development ambitions.
“Financing therefore becomes critical. We need to augment and seek additional resources. Equally public finance must seek to crowd in private capital,” Singh said at the Financing India’s Journey towards Viksit Bharat conference in New Delhi.
The call comes after India recorded 7.8% growth in the first quarter of fiscal year 2027 (FY27) and as Japan Credit Rating Agency on 2 September upgraded India’s sovereign rating from BBB+ to A-.
Singh said the next challenge is not simply to increase public spending, but to improve capital allocation and create conditions for stronger private investment.
Lift productivity
The incremental capital-output ratio (ICOR), a measure of how much investment is needed to generate additional output, has improved from about 5 to 4.5 but has since remained around that level, Singh said.
He called for better allocation of resources across firms, easier access to land, labour and credit, stronger human capital and research and development, better and greater trade openness.
Singh also argued that fiscal policy needs to account for differences among states. Rather than applying a uniform debt benchmark, he proposed state-wise assessments of debt sustainability that reflect differences in growth, interest costs, revenue buoyancy and committed expenditure.
The Reserve Bank of India or the finance ministry, with support from the Comptroller and Auditor General, could conduct independent assessments and identify appropriate debt thresholds and sustainable adjustment paths, he said. The assessments should serve as diagnostic inputs and could improve states’ access to credit.
Singh said the is on course to meet its debt target of 50±1% of GDP by FY31, while states collectively have debt of roughly 28%. The Sixteenth Finance Commission has projected general government debt at 73.1% of GDP by FY31, down from 84% currently, although geopolitical and other external shocks could make fiscal adjustment harder.
Pool resources
On fiscal federalism, Singh proposed moving beyond a “Centre versus states” approach towards concerted action. He suggested extending the GST Council’s experience with pooled taxing authority to shared infrastructure, urbanisation and agricultural value chains, including grids, logistics, transport and river basins.
Revenue mobilization offers another avenue, he said. Singh noted the debate over whether India’s tax-to-GDP ratio, at around 19%, is adequate, but argued that the bigger opportunity lies in using information and technology to improve compliance rather than relying solely on higher tax rates.
“With unprecedented volume of tax data”, artificial intelligence and machine learning can help identify compliance gaps, target enforcement and broaden the effective tax base, he said. He also suggested making deeper use of GST turnover, income-tax returns, TDS, customs data and MCA filings to widen the income-tax base.
Crowd in capital
Public finance, Singh said, should not be replaced by private finance but should act as a catalyst for it. He cited the Scheme for Special Assistance to States for Capital Investment, which helped lift states’ capital outlay from 2.2% of GDP in FY22 to 2.7% in FY25. The next objective, he said, should be to ensure such support crowds in private .
The constraint is often not a shortage of money but a shortage of bankable projects, Singh said. Better project preparation, independent assessment, clear land titles and appropriate risk allocation could improve creditworthiness and attract private capital.
He also pointed to unused lending capacity at multilateral development banks. The G20 Independent Expert Group’s “Triple Agenda”, he said, showed that hybrid capital could achieve leverage of at least 1:6, with every $1 of hybrid capital supporting $6 of multilateral development banks lending over a decade.
Cost remains another constraint. Singh said India’s cost of capital is estimated at 10-12.5%, compared with 6-10% across Malaysia, Thailand, Vietnam and Indonesia. He called for greater flexibility in credit allocation, including a redesign of priority-sector lending to reflect the needs of the current economy, with areas such as green energy, digital infrastructure and receiving greater recognition.
For labour, Singh said low wages alone do not mean low labour costs, because weak productivity and high operating and input costs can undermine competitiveness. He called for greater skilling, simpler compliance and stronger links between universities and industry.
On land, Singh said states have the most direct control and should use scarce land more efficiently through better connectivity, a review of floor-space norms and faster approvals. He also stressed the importance of conclusive digital land titles, saying clear titles can turn land into collateral, reduce litigation risk and improve project preparation.
The broader objective, Singh said in his closing remarks, is to strengthen the partnership between the Union and states, with predictable policies, honoured payments and enforceable contracts forming the basis of India’s development and sovereign credibility.
“The ‘A’ sovereign rating belongs to the Union of States,” he said.