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India’s credit-to-GDP ratio is expected to rise as economic growth and formalisation increase access to finance, economists said on Monday at the fifth edition of the Business Standard BFSI Insight Summit 2026 in Mumbai. They said the expansion of credit would need to support productive investment, while access to non-bank financing and patient capital would also be important for India’s growth.
The discussion, titled ‘The Financial Sector’s Role in India’s Growth Story’, featured Aditi Nayar, chief economist and head of research and outreach at Information and Credit Rating Agency (Icra); Sonal Varma, chief economist for India and Asia ex-Japan at Nomura; Samiran Chakraborty, managing director and chief economist for India at Citibank; and Aastha Gudwani, India chief economist at Barclays. It was moderated by Business Standard‘s Tamal Bandyopadhyay.
According to Samiran Chakraborty, India’s bank credit-to-GDP ratio had doubled from 25 per cent to 50 per cent between 2004 and 2010. It then remained between 50 per cent and 55 per cent for more than a decade before crossing 60 per cent , marking what he described as a second phase of improvement.
“We are at such a low level of credit to GDP that for us improving the credit-to-GDP ratio is more important than trying to constrain it,” Chakraborty said.
He said an analysis of data covering 25 countries over 75 years suggested that investment growth of more than 10 per cent , alongside productivity growth of 3 per cent , could support economic growth of around 8 per cent. India had sustained investment growth of around 10 per cent only during 2004-2010, he said.
Sonal Varma said India’s relatively low credit-to-GDP ratio was consistent with its stage of economic development and per capita income. As the economy grows and formalisation advances, the ratio is likely to increase.
“This has a positive impact on growth, and growth has a positive impact on credit. And so the two have sort of a yin-yang kind of a relationship,” Varma said.
Quality of lending matters
According to Varma, the expansion of credit should be assessed not only by its size but also by how the money is used.
“I do think there are two aspects that are important more than just the credit-to-GDP ratio: the quality of credit we are disbursing. Are we disbursing credit for more productive needs, credit which will create more growth going forward, or are we disbursing more credit purely for consumption needs?” she said.
Varma also called for greater access to non-bank sources of capital to help young entrepreneurs finance new ideas and innovation.
Icra’s Aditi Nayar said the credit-to-GDP ratio could become an important indicator of the economy’s growth trajectory, taking the place of electricity growth, which economists had previously used as an indicator of economic activity.
She said better access to information could help banks make credit decisions and enable younger Indians to access finance for personal needs and new ventures.
Nayar also said the balance between bank lending and bond-market financing would depend partly on the interest-rate cycle. Bond-market rates tend to respond more quickly to rate changes, while banks adjust their lending rates more gradually.
Bank and non-bank financing
Chakraborty said the composition of financing had shifted towards bank credit in recent years after non-bank sources accounted for more than half of the flow of resources to the commercial sector during the previous decade.
Over the past four years, the share of bank credit had increased while the non-bank share had declined, he said.
The shift raises questions about whether India’s corporate bond market has developed sufficiently alongside its equity market, Chakraborty said. He also questioned whether tax policies had favoured equity investments over debt.
Varma called for more equal tax treatment of equity and debt to help channel domestic savings into the financing needs of the economy.
She said India had domestic savings that could be directed towards the financial sector’s funding requirements, but the current tax framework incentivised equity savings over fixed-income savings.
Varma also called for an ecosystem outside traditional banking that would allow businesses and entrepreneurs to raise risk capital for innovation.
Foreign capital remains a point of debate
The panel discussed how India could attract foreign investment while reducing its vulnerability to volatile global capital flows.
Varma said foreign capital alone could not meet India’s financing needs and warned against relying too heavily on overseas investors amid geopolitical uncertainty.
“I mean, I think foreign capital is not the answer to all our problems,” she said.
Varma said the amount of foreign capital India could attract annually had declined from around 2 per cent of GDP to less than 1 per cent of GDP. She called for longer-term measures to improve export competitiveness, strengthen domestic capabilities in essential sectors and reduce energy intensity.
Aastha Gudwani said foreign capital would remain important to India’s growth ambitions, alongside domestic funding.
“I don’t think that an India growth story shines without FDI,” Gudwani said.
She said the focus should be on patient capital, which could come from domestic or foreign sources. Policy predictability, the cost of capital, tax rules and currency stability would influence foreign investors’ decisions, she said.
Gudwani called for reviewing tax hurdles for foreign portfolio investors and improving currency stability.
Global shifts complicate capital flows
Varma said global investment flows were increasingly shaped by the race to invest in artificial intelligence, geopolitical disruptions and supply-chain shocks, and the growing role of geopolitical alignment in foreign direct investment decisions.
She said these shifts had made it harder for emerging economies with large investment needs to attract capital, as developed economies that traditionally supplied capital were also competing to attract it.
Nayar said India needed to continue attracting strategic foreign direct investment, including in banking, financial services and insurance, as well as other sectors.
“From a medium-term perspective, I think having gross FDI inflows, or for that matter, net FDI inflows, which happens to be the most patient part of our capital account, is something that we need to strive for,” Nayar said.
She also called for making it easier for Indian securities to enter global indices and improving their liquidity and tradability to support foreign portfolio investment. Ease of doing business and investment in labour-intensive sectors were other areas where India could attract foreign capital, she said.
Investment needs require financing reforms
Chakraborty estimated that India’s annual investment requirement would need to rise from around $1.5 trillion currently to about $3.2 trillion over the next decade. Meeting that requirement would involve around $600 billion in foreign capital, equivalent to roughly $60 billion a year, he said.
He cautioned that attracting capital could become more difficult as geopolitical conditions evolve, particularly if investors favour markets linked to artificial intelligence and advanced technology.
Nayar said the government had driven much of the investment growth since the Covid-19 pandemic, but fiscal constraints limited how much more it could borrow. She called for better expenditure management so that a greater share of available borrowing could fund capital spending rather than revenue expenditure.
The discussion centred on expanding credit availability while improving the range of funding options for businesses. The economists called for a stronger corporate bond market, better access to risk capital, more productive deployment of credit and reforms to attract long-term domestic and foreign investment.
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