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India's Path to Viksit Bharat in 2047: Financialisation Of The Economy

By AltG Investment Research Lab

Photo Of Financialisation Of Indian Economy

Unlocking Double-Digit Growth in India: Capital Markets, Financial Instruments, and Tax Policy

India stands on the brink of a new era of economic expansion. To achieve and sustain double-digit growth rates, the country must focus on developing its capital markets, innovating financial instruments, and reforming tax policies. These efforts will not only enhance the availability and flexibility of capital but also ensure efficient asset price discovery and optimal allocation of capital across sectors. Here’s a detailed look at how these elements can contribute to India's growth:

1. Financing Capital Expenditure (Capex)

Evolving Capex Financing: As Indian corporates are urged to increase their capital expenditures, a critical question arises: How should this capex be financed? Traditional equity and bank debt alone may not suffice. The development of new financial securities that provide greater flexibility will be essential.

Flexible Capital Markets: Creating markets for innovative financial instruments that are both liquid and deep can reduce the cost of capital while increasing its flexibility. For instance, a new hospital might be better financed with a mix of sponsor equity, structured debt, and other financial instruments tailored to specific project risks and returns, rather than relying solely on traditional bank loans.

Flexibility and Bankruptcy Concerns: The Insolvency and Bankruptcy Code (IBC) cases highlight that capital flexibility is as important as availability and cost. Flexible financial instruments can offer companies more room to manoeuvre in distress situations, thus supporting long-term growth.

2. Asset Price Discovery

Innovative Financial Products: The recent SEBI proposal to allow mutual funds to trade in credit default swaps (CDS) is a significant step towards greater market transparency and liquidity. Such financial innovations are crucial for accurate asset price discovery.

Market Transparency and Hedging: Instruments like CDS not only enhance liquidity but also provide essential hedging mechanisms. This helps in creating a more stable and transparent market environment, which is critical for attracting both domestic and international investors.

3. Mature Companies and Capital Allocation

Transition to Higher Growth Sectors: Many Indian companies, particularly those established around the 1991 liberalization, are now in the "mature growth" phase. These companies must reallocate capital from slow-growing sectors to high-growth areas, such as technology and entertainment.

Lower Cost Securities: By integrating lower-cost securities into their capital structure, these mature companies can achieve higher returns on equity. This process involves creating and promoting financial instruments that provide lower-cost capital, such as hybrid securities and convertible bonds.

Shareholder Value and High-Growth Investments: For shareholders, these financial innovations can translate into better returns as excess capital is channeled into emerging, high-growth sectors. This reallocation is vital for maintaining robust economic growth.

4. Tax Policy Reforms

Attractive Debt-Like Instruments: India needs tax policies that make debt-like instruments highly attractive in private markets. This involves providing tax incentives for investment in these instruments, which can lower the overall cost of capital and enhance economic growth.

Capital Gains Tax Adjustments: Addressing capital gains tax on private securities is another crucial reform. By lowering these taxes, the government can encourage more investments, thereby increasing aggregate volumes in the market.

Balancing Tax Revenue and Growth: While these tax reforms might lead to minimal short-term losses in tax revenue, the long-term gains from higher investment and economic growth will outweigh these losses.


India's path to double-digit growth requires a comprehensive strategy that includes the development of capital markets, the innovation of financial instruments, and targeted tax policy reforms. By enhancing the flexibility and availability of capital, improving asset price discovery, and enabling mature companies to reallocate capital efficiently, India can unlock its full economic potential. These efforts will not only drive growth but also ensure it is sustainable and inclusive, benefiting all sectors of the economy.

Simply, The Last 10 Years Were The Digitisation Of Finance, The Next 10 Needs To Be Financialisation Of The Economy

Disclaimer: In the article "India's Path to Viksit Bharat in 2047: Financialisation Of The Economy" above - Any views, comments or communication (above or in the past) should not be construed to be investment advice by Alternative Growth (hereafter referred to as “AltG”) in any form whatsoever. AltG does not make an offer to sell or solicit to buy any securities.


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