Missed Potential: 5 Fixes India Needs To Break Past 6 Per Cent Growth Trap

India’s economy is at a crossroads. Despite being among the fastest-growing in the world, it remains trapped in a 6-7 per cent growth band, which is far short of the 9-10 per cent needed to become a truly developed nation before demographic ageing begins to set in.

Prasanna Tantri, Associate Professor of Finance at the Indian School of Business, shares his take on the Reserve Bank of India's (RBI) recent Monetary Policy Committee announcements and seven reforms that India needs to achieve 9 per cent GDP growth on the What This Means podcast. (Listen to the full episode here)

The RBI announced a significant 50 basis point cut in the repo rate on 6 June, bringing it to 5.5 per cent, following a previous 25 basis point reduction to 6.25 per cent. According to Prof Tantri, this cumulative 100 basis point cut within six months, though a year late, is a welcome move.

It could boost growth within the business cycle, though, he says, it alone cannot address structural issues or propel India to the 9 per cent growth needed to make Viksit Bharat 2047 a reality.

Here are 5 fixes that Prof. Tantri thinks will help India break out of the 6 per cent growth trap.

Fix 1: Expand Access To Credit Through Digitised Data

One of the key bottlenecks is access to formal credit, especially for women entrepreneurs in self-help groups (SHGs). These borrowers often have clean repayment histories spanning over a decade, yet are classified as "new to credit" by formal lenders. As a result, they are charged exorbitant rates.

Digitising SHG transaction histories and linking them to credit bureaus is important. Once these women get credit scores of 750 or 800, their borrowing cost can drop from 26 per cent to 8–10 per cent — that’s a home loan revolution for the poor.

Similarly, the 52 crore Jan Dhan accounts represent a rich dataset of financial behaviour that banks have underutilised.

The initial promise of overdraft facilities with Jan Dhan accounts has not been fully realised, and defaults may have led to its quiet discontinuation. My suggestion is that banks or their fintechs should leverage this data to extend credit efficiently.

Among all PM Modi's schemes, Jan Dhan is the most successful scheme, according to me. It's had a dramatic impact on the lives of people. Without Jan Dhan, none of the freebies and DBT would have happened. It is one programme that was delivered on time.

Initially, people used to mock these as zero-balance, and nobody would use them. That's not true. One failure of the Jan Dhan scheme is that the initial promise of overdraft facilities with Jan Dhan accounts has not been fully realised, and defaults may have led to its quiet discontinuation.

My suggestion is that banks or fintechs should leverage this data to extend credit efficiently.

Fix 2: Rethink Fintech Regulation — Don’t Kill Innovation

The fintech sector, which experienced a boom-bust cycle, holds potential to improve credit access but requires better regulation. We moved from complete freedom to total crackdowns on fintechs. Now that the dust has settled, we must create a framework for fintechs — what data they can access and what algorithms they use.

The concept of open banking, where fintechs access bank data with customer consent, has faltered because only high-risk borrowers tend to share data, rendering it less useful.

A radical solution: let public sector banks create fintech subsidiaries with private-sector-like incentives and pay structures. Bankers have no reason to innovate. But SBI Life operates like a private firm — why can’t Union Bank Fintech be set up the same way?

While GST was meant to create a unified market and reduce distortion, it has devolved into a tax-maximisation tool. Instead of simplifying compliance, it's used to extract information and chase businesses. That hurts growth.

There are examples where businesses lose input tax credit because their suppliers didn’t file returns, even if the business itself paid the tax. This defeats the whole idea of supply chain flexibility and punishes firms for someone else’s failure.

Hence, this structure incentivises businesses to work with established partners, undermining GST’s goal of fostering competition. Additionally, delays in GST refunds, often exceeding the promised time, burden small and medium enterprises (SMEs).

On record high GST collections: If the collections rise without GDP growth, it just means the same income is being taxed more. That’s not progress.

When GST was about to be launched, there was an absolute consensus that it would increase our GDP by 2 per cent. The question is, where is that 2 per cent growth? Are you telling me that if there were no GST, our growth would have been 4.5 per cent? Now if digitisation is supposed to add 1 per cent, if there was no digitisation, are you saying our growth would have been 3 per cent? The smell test itself should tell you there's something going wrong in implementation. The problem is, instead of GST as a reform tool, what it ended up becoming is a tax collection tool. Sadly, that's an unintended way GST has been led.

Fix 4: Reignite Private Investment And Fix Savings

RBI and the government have both called for the private sector to lead the next growth phase. There will be some improvement; companies are slow to adjust. They should see improvement in demand conditions and improvement in jobs. This is all linked to ease of doing business.

For instance, gross FDI has gone up, but net FDI is stagnant. And India’s savings rate is going down. Unless savings improve, investment and thus growth will remain constrained. You can’t grow without funding it.

At least some people in the government should start thinking about addressing the savings problem.

Fix 5: Shift Focus To Micro Reforms

The 2014–2019 reform momentum — digital push, IBC, banking cleanup — needs to return. But results take time. So, if you start reforms now, impact will show up only after two or three years. That’s frustrating, but necessary.

A. Education Reform: Despite the New Education Policy, teacher accountability remains unaddressed, and many universities possess advanced facilities but lack skilled personnel to utilise them. The demand for skilled professionals, such as pharmacists, far outstrips supply, hindering industries like pharmaceuticals from capitalising on global opportunities, such as firms relocating from China.

A market-oriented education system with accountable teachers is essential to create a skilled workforce and drive job creation.

B. Healthcare Expansion: The Ayushman Bharat scheme has potential but is constrained by artificial caps, such as limited hospital beds for beneficiaries. Private hospitals, facing inadequate reimbursements, restrict access, leaving many without coverage. Doubling the scheme’s budget could enhance access, boost workforce productivity, and yield significant economic returns, as healthier workers contribute more to GDP.

C. Research And Innovation: Invest in Reseach & Development. Create an ecosystem and establish special economic zones with world-class facilities, competitive salaries, and operational freedom to attract top Indian scientists abroad. Such an initiative could foster innovation, train local talent, and position India as a global R&D hub.

Note: In this episode we also discuss RBI's growth and inflation forecast, the need to improve the ease of doing business, the rise in cash-to-GDP ratio, even amid booming digital transactions, and more. You can listen to it on Spotify, Apple Podcasts or the Swarajya App.