Finance Minister Nirmala Sitharaman recently emphasised that banks will play a pivotal role in making India a “developed” nation by 2047. The vision of a Viksit Bharat, centred on economic growth, social progress, and good governance, places Indian banks at the heart of these initiatives.

Banks’ participation in India’s economic growth must come from their own balance sheet growth. The more deposits banks accumulate and the more they lend, the greater their contribution to national growth. Due to the clean-up of both corporate and banks’ balance sheets, and the institutionalisation of the IBC, which empowers lenders, Indian banks are now better positioned to fuel the country’s growth trajectory. With growth rates projected at over 7 per cent, and potentially 8 per cent, India is on course to becoming the third-largest economy by 2027.

However, catching up with China — the world’s second-largest economy — will take much longer. A simple logarithmic calculation reveals that even if India were to grow at twice the rate of China, it would take about 37 years for their economies to reach parity, given that China’s economy is currently about four times the size of India’s. That said, India’s recent growth rates offer hope.

One of the underappreciated outcomes of India’s growth is the significant expansion of its financial institutions, with a few surpassing international organisations like the World Bank and the IMF in size. This remarkable achievement has not garnered the public attention it deserves.

Traditionally, the Bretton Wood twins, led by the West, were seen as financial giants to whom the Global South turned for assistance in times of crisis. India was no exception. In 1991, India had to secure an emergency credit of $2.2 billion from the IMF by pledging 67 tonnes of gold as collateral to tide over a forex crisis. This remains a rankling memory.

Fast forward to today, India’s foreign exchange reserves are nearly $700 billion, making it the fourth-largest reserve holder, just behind Switzerland with $800 billion. Simultaneously, the balance sheets of Indian financial institutions have grown impressively.

As of June last year, the World Bank’s balance sheet stood at $347 billion, while India’s largest lender, the State Bank of India (SBI), boasted a balance sheet of $807 billion. Even the second largest bank by size in India, HDFC Bank, has assets of $430 billion. For context, the IMF’s balance sheet was around $560 billion.

India’s financial muscle has also enabled it to extend international assistance. Last year, India extended a $1 billion loan to Sri Lanka through SBI, while the IMF and other global lenders took two years merely to reschedule Sri Lanka’s existing loans. Notably, India’s assistance came sans any conditions that would compromise Sri Lanka’s economic sovereignty. IMF loans often come with stringent standard conditions born out of the “Washington Consensus”. Recently, Kenya, a struggling African nation, received a $3.7 billion loan from the IMF, but with typical conditions of tax hikes and subsidy cuts, sparking widespread unrest.

As India prepares to become the world’s third-largest economy and a “developed” nation by 2047, several key questions arise: How should India position itself as a global power? How can its financial institutions support the country’s ascent to economic leadership? And can India create an independent financial support system for smaller economies in the Global South, providing an alternative to the IMF/World Bank model?

Necessary conditions

There are at least three necessary conditions to be fulfilled for India to establish itself as a leading global economic power.

Expansion of Indian financial institutions: First, Indian banks must grow in size and influence. Currently, the world’s four largest banks by asset size are Chinese, far ahead of Western banks like JPMorgan Chase and HSBC. SBI and HDFC Bank do not figure in the top 30 . For India to be taken seriously on the global financial stage, at least three to four Indian banks must grow their assets (mainly domestically) to rank among the top 20 global banks within the next 15 years. With the economy expected to grow at 7-8 per cent annually, credit growth, (including lending to infrastructure by the large banks) will need to accelerate by 15-16 per cent in nominal terms, driving corresponding balance sheet growth.

Supporting Global South economies: Second, India must increase its financial assistance to countries in the Global South, particularly in Africa. China has expanded its international influence through institutions like the China Development Bank and the China Investment Corporation. Similarly, India will have to either through the government or a sovereign wealth fund, provide development assistance in the form of grants, soft loans, and technology transfers. Without such initiatives, India’s rise may not bestow corresponding relevance.

Ensuring economic inclusivity: Last, India must ensure that the benefits of development are shared equitably. This means not only focusing on wealth creation but also job creation to raise incomes across all sectors of society. A truly Viksit Bharat can only be realised when “economic democracy” is achieved, lifting millions out of poverty and into the fold of national progress.

With thoughtful strategies and bold moves, Indian banks and financial institutions can help the country achieve its vision of becoming “developed” by 2047.

The writer is a commentator on banking and finance

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