India's inclusive growth playbook: SMEs, farmers, and infrastructure at the core

Time of India

09-05-2025

India's inclusive growth playbook: SMEs, farmers, and infrastructure at the core
Dr.
Arvind Panagariya
, Chairman of the 16th Finance Commission, recently called India 'unstoppable.' The foundations for India to emerge as a global economic power are firmly in place.
India stands on the brink of a transformative decade—one that calls for a shift from incremental progress to exponential ambition.
Realising this potential will require a vision powered not by diesel, but by rocket fuel—where infrastructure investment forms the launchpad for sustained, long-term growth.
Since the early 1990s, China has significantly boosted its GDP India's inclusive growth playbook: SMEs, farmers, and infrastructure at the core from $360 billion in 1990 to $19 trillion in 2024 . India has shown bold leadership too, prioritising infrastructure and laying strong groundwork.
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Small and medium-sized enterprises (SMEs), the backbone of India's market economy, stand to gain enormously. Representing the majority of private enterprises, SMEs drive innovation, patenting, and new product development. They are deeply woven into value chains, more dynamic than larger corporations, and critical to employment creation.
Crucially, nurturing SMEs can help India avoid the 'middle-income trap' that has stalled nations like Brazil and South Africa.
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A focused strategy to strengthen SMEs—particularly their competitiveness in export markets—could be transformative.
Yet SMEs face significant barriers, notably access to finance. Women-owned SMEs are especially underserved.
The 2025–26 Government of India budget made important strides: establishing a venture capital fund, expanding credit availability, and launching credit cards for microentrepreneurs. However, with over 60 million
SME
s, government funding alone cannot meet the sector's vast needs.
Budget constraints mean SME support must be primarily market-driven.
Microfinance institutions have successfully provided short-term working capital to microenterprises, lifting millions out of poverty. However, they do not cater to larger SMEs or offer long-term growth financing—creating a critical gap.
Given their scale, SMEs are not just part of India's economy—they are the economy. Harnessing their potential could drive national growth at an unprecedented pace.
Infrastructure investment is not just critical in India's booming cities — it's just as vital in its villages. But building roads and power lines alone isn't enough. True transformation requires pairing infrastructure with direct support for small-scale farmers (SSFs), who together produce the vast majority of India's food.
And the stakes are bigger than India alone.
With the global population set to rise from
8 billion today to 10 billion by 2050, the world will need 70% more food.
Developed countries, already farming at peak efficiency, won't be able to fill that gap. It's developing countries like India — home to one of the largest areas of cultivable land — that must step up to feed the future.
Yet most Indian farmers work on plots smaller than two acres; marginaliszed farmers often have less than one. Small landholdings mean lower productivity — unless we find ways to close the gap. Connecting SSFs with cutting-edge technologies could unlock dramatic gains in yield and sustainability.
The good news is that this technology already exists. The challenge is that funding flows heavily toward inventing new solutions ('first-mile' investment) but falls short when it comes to delivering those solutions to farmers ('last-mile' investment). Without strong channels to deploy proven technologies, innovations gather dust while fields stay underproductive.
Changing this requires more than better tech; it demands new strategies, business models, and financing tailored to small rural enterprises.
If we get this right, the impact will be profound: higher food production, stronger rural economies, new job creation, reduced poverty — and a brake on the rural-to-urban migration fueling overcrowded cities and widening inequality.
Investing in small farmers isn't just an act of support. It's a strategy for sustainable national growth — and a critical step toward securing the world's future food supply.
Dr. Arvind Panagariya
Over the past two decades, India has invested over a trillion dollars in infrastructure. Projects like the Golden Quadrilateral (GQ)—linking Delhi, Mumbai, Chennai, and Kolkata—have been transformative. Today, connectivity is being further enhanced through the National Industrial Corridor Development Programme and the PM
GatiShakti
Master
Plan
.
Launched in 2021, PM GatiShakti fosters coordination across ministries and states to plan critical multi-modal infrastructure. Grounded in transparency, accountability, and data-driven decision-making, it aims to catalyze $1.2 trillion in private infrastructure investment over five years.
By improving logistics and cutting transportation costs, GatiShakti especially benefits SMEs, which account for 45% of India's exports.
Efficient supply chains can dramatically boost manufacturing competitiveness.
However, financing future infrastructure—requiring trillions of dollars—remains a challenge. Attracting global institutional capital demands a two-pronged approach: innovative financial structures to assure investors of future cash flows, and a strong pipeline of bankable projects.
Public-Private Partnerships (PPPs) are essential.
They must optimisze public commitments to unlock maximum private funding, allocate risks effectively, and ensure private incentives align with public goals. PPPs must catalyze transformative change—not just de-risk private returns.
A robust banking system is equally critical, one capable of prudently financing SMEs and infrastructure through sound credit risk management and alignment with national priorities.
Addressing issues like land acquisition, contract enforcement, and dispute resolution is vital. India's telecom sector, transformed after regulatory reforms, offers a powerful example of what's possible.
The National Bank for Financing Infrastructure and Development (NaBFID) could be a game-changer if it innovates—especially to support SMEs. Drawing lessons from Brazil's BNDES, NaBFID can broaden and deepen India's capital markets, develop project bond markets to address banking maturity mismatches, and catalyze long-term financing.
NaBFID could also provide credit enhancements for banks financing SME infrastructure projects, making it easier to attract pension and insurance fund investments. With strategic structuring, NaBFID can leverage its $2 billion capital to mobilize funding at over 1000 times that amount.
Supporting SMEs is essential. With access to long-term capital, hundreds of Indian SMEs could scale into global companies within a decade, propelling broad-based growth and helping India escape the middle-income trap.
Finally, India's demographic dividend offers a once-in-a-generation opportunity. Seizing it demands urgent, long-term investment, largely financed by the private sector through innovative, well-structured PPPs.
Building on past successes, India must embrace a fresh, inclusive vision—one where infrastructure development and SME empowerment are hardwired into its financial systems to deliver equitable and sustainable prosperity.
Contributed by Saud Siddique
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