India is undergoing a massive infrastructure development. In the current financial year alone, some Rs 11.21 lakh crore was earmarked for government capital expenditure. As India aspires to become a developed economy by 2047, infrastructure spending is only expected to grow rapidly.
Chief Economic Advisor V. Anantha Nageswaran says the massive investment required can't be sustained unless our debt capital markets grow substantially.
"No large economy has sustained high growth without deep, liquid and innovative debt markets, whether it is capital or bank funding or both," he said.
Over the past few decades, banks have played a massive role in India's development. While banks will continue to play a big role, India will need a strong debt market to fund the massive investments needed in the coming years, he says.
"The next 15 years of investment in energy transition, logistics and connectivity, manufacturing scale, healthcare, technology, infrastructure and urbanisation cannot be financed by banks alone, although they will still play an important role. India needs both a strong banking system and a strong debt capital market, not one or the other," Nageswaran said.
The World Bank estimates India will need $2.4 trillion by 2050 for urban infrastructure development.
But, earlier reports have estimated that India's ambitious development goals are constrained by an infrastructure financing gap exceeding 5 per cent of GDP.
While banks will continue to lead in working capital credit, relationship-driven lending and early-stage product finance, debt capital markets must increasingly lead in long-duration financing and transition finance, Nageswaran pointed out.
India's total bond market was estimated to be around $2.78 trillion as of March 2025. In 2024, JP Morgan added Indian government bonds to its indexes. Bloomberg is also likely to add Indian bonds to its global aggregate index.
India's economic growth has been strong. In fact, Nageswaran says macro-economic conditions are unusually supportive given sustained high economic growth, macro stability despite global shock, credible fiscal consolidation, resilient banking system and record foreign exchange, among other things. This, he said, had boosted investor confidence and contributed to the inclusion of Indian bonds in global bond indexes.
"The challenge today is not the absence of a debt market but its concentration," he said, speaking at Trust Group's India Debt Capital Market Summit.
He noted that while large corporates could raise funds with ease, the task was to enable even mid-size corporates and municipal bodies to access markets at affordable rates.
He also called for greater participation in the debt markets from insurance companies, pension, and private funds.