Reforms That Can Make India a Developed Nation

Reforms That Can Make India a Developed Nation

Why in News? 

India is rapidly progressing with bold reforms to become a developed nation by 2047, targeting an average GDP growth of 7.8% annually. The success depends on key reforms that aim to strengthen the economy, boost productivity, and build a sustainable path toward a $7–10 trillion economy.

What does a Developed Nation mean?

• Definition: A developed nation (also called an advanced or industrialized country) is one with a high quality of life, modern economy, and advanced infrastructure compared to less industrialized nations. It is typically characterized by high income per capita and strong human development outcomes such as education and health.
• Examples: Real‑world examples of developed nations include the United States, Japan, Germany, the United Kingdom, Canada, France, Australia, Sweden, and Switzerland, which consistently rank high on metrics. Developed nations are mostly found in North America, Western Europe, and developed parts of Asia and Oceania.
• Core Parameters: Development is assessed through multiple measurable indicators, including:

• Economic Indicators: High GDP per capita and GNI (Gross National Income) per capita are foundational markers of wealth and productivity.
• Human Development Index (HDI): A composite index combining life expectancy, education (mean years of schooling), and per capita income.
• Industrialization and Services: A dominant tertiary (services) and quaternary (knowledge/innovation) sector signals mature economic structure.
• Infrastructure Quality: Efficient transportation, communication, energy, digital networks etc., underpin economic activity. 
• Social Well‑Being Metrics: High literacy, low poverty, good healthcare access and life expectancy reflect societal progress. 

• Essential Characteristics: Some principal characteristics of developed nations are:

• High Standard of Living: Citizens enjoy better housing, nutrition, health care, and education compared to less developed nations.
• Advanced Industrial and Service Economies: Economies are predominantly industrial and service‑oriented with strong technological sectors.
• Low Poverty & Unemployment: Developed nations typically have lower poverty rates and higher employment in skilled jobs.
• Robust Governance & Institutions: Democratic systems with strong rule of law, transparent governance, and effective regulatory frameworks contribute to stability and investor confidence. 
• High Human Development Scores: These countries consistently score very high on HDI reflecting health, education, and income achievements. 
• Technological Advancement: Broad R&D investments and innovation ecosystems—key for future growth and competitiveness. 

Four Reforms that can make India a Developed Nation by 2047

• Rebuild Long‑Term Domestic Savings: Rebuilding long‑term domestic savings is the foundation for sustainable growth in India and a critical step toward becoming a developed economy by 2047. India’s net household financial savings dropped to about 5.3% of GDP in FY2023, the lowest in decades, even as household debt rose above 40% of GDP, showing a shift from savings to consumption and liabilities. 
  • Stable long‑term savings — through instruments like pensions, insurance, provident funds, and long‑term debt securities — provide reliable capital for infrastructure and productive investments, reducing dependence on short‑term loans or volatile foreign capital. 
  • Recently, alternative investment vehicles such as AIFs (Alternative Investment Funds) have seen strong growth, with total commitments reaching Rs 13.49 lakh crore (~$162 billion) by March 2025, driven by domestic investors seeking diversified, patient capital.
  • Boosting domestic savings also means improving financial inclusion and market participation — from expanding mutual fund and equity ownership to enhancing retirement products. This reform addresses India’s savings bottleneck and catalyzes investment for high‑growth sectors.
• Shift Long‑Tenor Financing from Banks to Markets: India’s traditional banking system is strong, but primarily short‑term in nature. Banks mainly provide short‑to‑medium term loans from deposit pools, which are not ideal for long‑gestation capital needs such as infrastructure, manufacturing, and energy transition.
  • To sustain high growth, long‑term financing must shift from banks to deeper capital markets. While India’s corporate bond market has expanded, its size remains shallow relative to GDP, with limited secondary market liquidity and concentrated issuance by highly rated entities. 
  • Developing market‑based financing mechanisms — such as corporate bonds, infrastructure bonds, pension funds, insurance pools, and institutional long‑term investors — will reduce reliance on banks and allow enterprises to access patient capital with longer maturities. Private credit markets are also growing rapidly, with $9 billion deployed across large deals in 2025, indicating expanding appetite for non‑bank capital.
  • Policy reforms that support liquidity enhancement, investor protections, credit rating transparency, and retail participation will make India’s markets more attractive. A vibrant market ecosystem lowers the cost of long‑term capital and accelerates investments in transformative sectors, underpinning the nation’s development agenda.
• Improve Capital Efficiency: Capital efficiency measures how much economic output is generated per unit of investment. India’s incremental capital‑output ratio (ICOR) is estimated to be around 4–5.5, meaning higher capital inputs are required to sustain growth, placing pressure on savings and fiscal resources. 
  • To raise capital efficiency, India must focus on streamlining project execution, reducing regulatory bottlenecks, and improving governance frameworks. Faster approvals, transparent contracts, predictable regulation, and strong dispute resolution frameworks directly reduce delays and cost overruns in major infrastructure and industrial projects.
  • Deregulation, as emphasized in the Economic Survey 2024‑25, enhances ease of doing business and unlocks investment, while simplifying labour laws and investment procedures reduces compliance burdens that discourage efficient capital deployment. 
  • Strategic infrastructure projects like the Delhi‑Mumbai Industrial Corridor and Public‑Private Partnerships (PPPs) in logistics and transport link production ecosystems efficiently, reinforcing productivity growth and lowering the capital intensity needed to generate output. 
  • Improving capital efficiency also involves leveraging digitalization, technology, and data systems to reduce leakages, optimize resource allocation, and monitor project outcomes — essential for delivering higher returns on investment and long‑term sustainable growth.
• Use Start‑ups and Deep Tech to Bend the Capital‑Output Curve: Start‑ups and deep tech enterprises can significantly enhance productivity with relatively lower capital intensity, bending the traditional capital‑output curve upwards. India’s start‑up ecosystem is a powerful engine for innovation, generating higher output per unit of capital and boosting competitiveness across sectors like logistics, healthcare, energy, and manufacturing. 
  • The government has expanded the Fund of Funds for Startups, doubling the corpus and supporting the ecosystem with enhanced credit guarantees and venture capital deployment, contributing to an ecosystem now catalyzing significant private capital inflows. 
  • Additionally, the Union Budget 2024 announcement of a ₹1 lakh crore (~$12 billion) deep‑tech financing corpus with a 50‑year interest‑free loan facility aims to strengthen investment in advanced technologies like AI, biotech, blockchain, and semiconductors, which are crucial for cutting‑edge innovation and competitive advantage. 
  • India’s deep tech market potential — projected to reach ₹2.66 lakh crore (~$30 billion) by 2030 — reflects strong growth opportunities in robotics, defence tech, and autonomous systems, positioning India as a global tech hub. 
  • Reforming policy frameworks to support industry‑academia linkages, patent ecosystems, and long‑term risk capital will ensure deep tech and start‑up success scales productivity gains across the economy. 

Conclusion 

Together, these four reforms provide a holistic framework for powering India’s transition to a developed economy by 2047. They address the key challenge of financing quality growth, ensuring that investment is both durable and productive, while fostering innovation and deepening financial markets.