Table of Contents

In addition to the production and consumption challenges India faces in trying to improve its economic growth, finances and the regulatory environment pose their own impediments. The financing constraints on growth in all their aspects—the low savings rate, low investment rate, shallow credit markets, a banking sector in need of reform, and the low tax base of the state—merit a closer look.

The Capital Accumulation Challenge

One of the more egregious stylized features of economic development, evident recently among East Asian economies, is the role of increasing capital accumulation. For example, during their periods of high growth, several East Asian countries had very high savings rates, which were intermediated toward financing capital investments in infrastructure and manufacturing. Rapid growth was facilitated by the accumulation of capital and its investment to expand the production possibility function toward that of the developed economies. While other factors undoubtedly contributed to these economies’ sustained high growth rates, capital accumulation has also been a proximate determinant in all high growth periods.34

In India’s case, the savings rate and capital formation rate have both been in decline, a trend that started even from a level below the one reached by the East Asian economies during their high-growth phases. This is reflected in the low and declining gross capital formation per worker in India in recent years compared to that of its East Asian peers (see figure 4).

The economic historian Robert Allen has documented India’s capital accumulation shortfall. He writes, “Between 1860 and 1990, it [India] accumulated little capital and achieved little growth. Its capital-labor ratio in 1990 ($1,946) and labor productivity ($3,235) were like Britain’s in 1820 ($1,841 and $4,408, respectively).”35 Comparing the development trajectories of seventeen countries in the 1820–1990 period, he argues that developing countries such as India “need to accumulate capital in the massive way that East Asian economies have done since 1960 in order to close the gap with the West.” That gap is a huge one to close.

Unfortunately, India is constrained by its low savings rate and narrow capital base, both of which constrain it from generating the capital required to sustain a high economic growth rate for a sufficiently long period. Four dimensions of this problem—the savings rate, credit markets, taxation base, and infrastructure financing—bear examination.

Low Savings-Investment Equilibrium

Any economy, large or small, needs a massive mobilization of resources, especially in its initial years of catch-up growth. India is disadvantaged in this respect because its very low tax base is a strongly binding constraint on resource mobilization for governments.

As much as governments need tax resources, the private sector needs large volumes of savings, intermediated through various financial institutions, to finance its investments. One of the pillars of the success of the East Asian economic model is the mobilization of very high domestic household savings. During their long high-growth periods, East Asian economies enjoyed gross domestic savings (GDS) in excess of 40 percent of gross domestic product.

Most East Asian nations had small economies when they set out on a growth trajectory, and so they chose to become open economies with an emphasis on exports. Small economies overcome their size deficiency by building global-scale production, which can be viable only through exports. To encourage exports, a country needs to consume less domestically. That naturally results in more savings. These countries also practiced financial repression, which channeled savings into areas desired by the government. Financial repression is the denial of opportunities to savers to invest their savings to earn market rate of return on their investments. Countries engage in that to lower the cost of capital to facilitate capital formation in the economy. Like some of its East Asian neighbors, India has practiced financial repression, and still does, but mostly in the service of government consumption.

Their desire to grow through exports meant keeping up with global quality standards, lowering consumption, promoting higher savings, and increasing investment, and by these means achieving higher economic growth. It is important to know why China in particular followed this path, for China was not a small nation. China chose to prioritize investment and exports because doing so would enable it to achieve a high rate of savings, which in turn would mobilize capital on the scale needed to achieve higher standards of living for hundreds of millions of people within a generation. China’s current problems with debt and economic growth may be formidable, but they are recent. For nearly three decades starting with its opening up in 1979, it achieved real economic growth and prosperity.

India’s GDS rate had risen to a high of 36.8 percent of gross domestic income in 2007–2008 as per the old GDP calculations with a base year of 2004–2005. However, in 2015 India switched to a new base year for national income, savings, and investment calculations. Historical data with the new base year are not yet available. In any case, it is correct to say that the savings rate had declined since that peak in 2007–2008 and has stagnated at around 32 to 33 percent of gross national domestic income from 2011–2012 until 2014–2015, the latest year for which data are available. This figure does not accurately reflect the extent of savings available for intermediation since the amount of investable savings is lower. The brokerage firm Nirmal Bang recently estimated that the gross financial savings (GFS) of Indian households declined to a twenty-five-year low of 9.8 percent of GDP in the financial year ending March 2015.36 Insofar as bank deposits form nearly half of all financial savings and equity market investments just 4 percent of GFS, and because incremental bank deposits have been declining in recent months, the brokerage expects the GFS to continue falling in 2015–2016.

Underlining the lower expectation of GFS going forward, Credit Suisse’s Global Wealth Report 2015 points to a very low level of financial wealth among Indian households.37 It estimates the average household’s financial wealth to be just 13 percent of total household wealth, lower than among peer economies.

India’s declining savings rate has mirrored a similar sharp decline in the country’s gross fixed capital formation (GFCF). The fall in GDS and the resultant decline in GFCF coincided with the transition to a lower growth trajectory (see figure 5). 

In contrast, China’s spectacular growth story was underwritten by the country’s high savings rate, which rocketed beyond 50 percent of GDP in the past decade. Its GDS rate today is almost twice as large as India’s, and its GFCF is nearly 20 percentage points higher. Furthermore, even as India’s savings rate has been declining, China’s savings rate shows no signs of weakening. In light of the vastly different contexts, it appears unlikely that India can come near the savings and investment rates achieved by China.

Even India’s current savings rate is deceptive since the share of household savings locked up in illiquid and unproductive investments such as real estate and gold has grown in recent years.38 A study from Credit Lyonnais Securities Asia, a group of brokerage and investment houses focused on institutional services and asset management, found that as of the end of 2012, land and gold together made up 71 percent of all household assets.39 The limited market for housing mortgages and gold funds means that savings in these forms contribute very little to India’s investment needs, and the share of equity and other nonbank financial investments is marginal. This is in sharp contrast to global trends, which show the bulk of savings invested directly in financial assets.40 The investment proclivities of Indians therefore shrink the pool of savings available for investments.

Thus another challenge emerges. High growth rates cannot be sustained without high investment rates, but high investment rates require a high domestic savings rate. The alternative, namely, to use foreign capital, risks creating large current account deficits, which would leave the country vulnerable to sudden stops of capital inflow and capital flight. 

India, it appears, is trapped in a low-level equilibrium. Problems of access, volatility in equity markets, limited liquid fixed income savings instruments, and a grossly underdeveloped insurance market have kept investors out of the financial markets. Furthermore, the inflation tax has been a big disincentive to investing in financial assets. In contrast, thanks to recurrent booms, and for historical reasons, land and gold have appeared to be relatively attractive investment options. Their allure is amplified by the attraction of their being safe conduits to stash away black, or ill-gotten, money as well as avoid taxes. In turn, this self-reinforcing savings-investment channel is a formidable deterrent to the emergence of a deep and broad financial market. Therefore, India must not only increase its domestic savings rate but also take measures to limit the distortionary savings misallocation by developing more effective financial intermediation channels.

India’s high-growth episode in the last decade (2000–2010) was characterized by gross fixed investment contributing 4 to 5 percentage points to GDP growth. In the aftermath of the worldwide recession of 2008–2009, the contribution of gross fixed investment crashed and has not recovered. In its absence, high rates of sustained economic growth are not plausible.

As a simple rule of thumb, since 1997, a 1 percentage point contribution of GFCF to GDP growth has been associated with a 3.56 percent growth in GFCF. If this relationship still holds, a 4 percentage point contribution of GFCF to GDP growth would require an annual GFCF growth of 14 percent. However, GFCF has been growing at a crawling pace of 3 to 5 percent in the past four accounting years, up to March 2016.

In simple terms, consumers have to save more (and spend more, too) and businesses have to invest more, thereby generating a virtuous circle that can sustain a high-growth trajectory. In the face of formidable headwinds—high interest rates, a high inflation rate, deficient infrastructure, weak global cues, and bruised bank balance sheets—the prospects for either look bleak.

Shallow Credit Markets

To sustain high growth rates, the domestic credit markets have to be large and broad enough to intermediate savings and meet the major share of the country’s investment needs. But India’s banking sector as a share of its economy is very small compared to that of its peers. Furthermore, it has been stagnant at about 75–80 percent of GDP since 2007 (see figure 6). At one level, it is not bad, as an excessively large banking sector is a source of systemic risk. However, India’s lags behind even its developing economy peers’ banking sectors in size. This small size is reflected in the M2 money supply, which is easily the lowest among major emerging economies.

The total incremental nonfood bank credit in 2014–2015 was INR 5,463.84 billion, an increase of 9.27 percent. After including all nonbank financing (capital markets, commercial paper, bonds issued by public sector entities, and disbursements by public financial institutions), the total incremental nonfood credit flow increased only marginally, to INR 6,383.31 billion, or a growth rate of 10.56 percent for 2014–2015. This small increase in the growth rate highlights the limited role of capital markets in the country’s financial intermediation system.

Compounding the structural problems, investment and credit growth have fallen precipitously since the start of the worldwide recession. The decline in gross fixed investment has been alarming: it fell sharply from 33 percent in 2007 to just above 27 percent (estimated) for 2014. In the 2008–2014 period, credit growth was nearly halved from its peak in 2008.

Foreign Direct Investment: A Credit Supplement but Not a Driver

A Financial Times report that India had claimed the pole position as global foreign direct investment (FDI) destination for the first half of 2015 generated much cheer across the country.41 It appeared to be a just reward for the government’s aggressive courting of FDI over the previous year and half. On a more realistic note, it raises the question of whether FDI can make up for the country’s massive investment deficit.

For a sample of eleven emerging East Asian economies, excluding Singapore, the average rate of annual FDI inflows as a share of GDP in the 1997–2014 period was 2.18 percent, with very low dispersion (see figure 7). The similar average as a share of GFCF was 8.4 percent, though it ranged from 10 percent to 20 percent for Malaysia, Thailand, and Vietnam. Over the more than two decades of China’s rapid growth, annual FDI inflows as a share of GDP never rose above 4 percent and as a share of total fixed investment peaked at about 11.6 percent before declining to about 8 percent. For India, the respective figures for 2014 stood at 1.65 percent of GDP and 5.75 percent of GFCF, and averaged 1.47 percent and 4.80 percent over the 1997–2014 period.42

The country’s total annual incremental nonfood bank credit as a share of GDP peaked at 8–11 percent in the high-growth period of 2003–2008, only to fall back to around 6 percent in recent years.43 In recent years, including the high-growth years, FDI has been no more than 20 to 25 percent of the total incremental credit.

Optimistically, assuming that FDI inflows average 4 percent of GDP (or $80 billion for 2015, well above the actual net FDI inflow of $48.2 billion into India for the year 2015–2016, as per RBI data) and 10 percent of GFCF over the coming ten years for India (both figures being higher than China’s over the 1997–2014 period) implies FDI inflows, at current credit volumes, would account for about 40 percent of India’s total incremental credit market. Apart from the difficulty of achieving such growth in times of global economic weakness, the effects of massive inflows on macroeconomic stability and the exchange rate, given the very narrow financial markets and limited domestic credit base, are not likely to be benign.

In 2007–2008, India had a balance of payments surplus of more than $92 billion. The capital account balance was $106.6 billion. India was not able to absorb it well. Bubbles popped up in asset markets. Bad investments were made, and capital misallocation was rampant. The inflation rate spiked up, and the rupee became overvalued, despite intervention. That is why when the global recession struck in 2008, India felt the shock. Had India channeled the capital flood well, its potential growth rate would not have dropped after the crisis and the country would not be struggling to get back on track.

Though India has not managed to attain a similar high level of balance of payments surplus since then, its combined net investment flows have been respectable. In the year ending March 2015, net investment inflow was on the order of $73.6 billion (this figure came down drastically to $31.5 billion in 2015–2016 due to portfolio outflows). Yet official statistics aside, many economists peg India’s economic growth rate at or slightly above 6 percent for 2014–2015.44 That judgment reflects India’s inability to turn investments into output and inputs into production. India’s land, labor, and capital productivity and its total factor productivity are too low for a growth takeoff to happen.

This discussion is not intended to serve as an argument against FDI. Technological benefits, a culture of innovation, and an enhanced ability to meet competition are clear benefits of FDI. Two points should be stressed, however: first, the country is ill-equipped to absorb and gainfully deploy vast sums of FDI, and second, the historical experience of other countries, including those that received generous FDI, suggests that total FDI inflows would not exceed 4 percent of GDP. Therefore, increasing the domestic savings rate is a growth and policy imperative for India.

Inadequate Tax Base

Apart from being the platform to support economic activity directly, a broad industrial base and a large middle class contribute to the tax revenue required to create infrastructure assets and deliver various public services. The narrow industrial base and limited pool of middle-class taxpayers is nowhere reflected more starkly than in the country’s very low tax-to-GDP ratio. India has one of the lowest ratios among the G20 countries—far lower than Brazil’s, for example.45

Despite India’s large population, the country’s income tax base is comparable to that of a small European country. In 2012­–2013 there were just 31.19 million assessees, or less than 3 percent of the 1.2 billion population,46 in contrast to 147 million assessees in 2013 among 316 million people in the United States.47 Of the 31.19 million, 17.61 million, or more than half, were public sector employees.48 Almost 98.28 percent of the 31.19 million had incomes of less than INR 0.5 million (or $10,000), only 0.8 percent had incomes of more than INR 1 million, and just 18,359 had incomes in excess of INR 10 million.49

Some 618,806 companies filed corporate income tax returns for 2012–2013, for a total amount of INR 2,439.21 billion, just 2.44 percent of GDP. Furthermore, 55 percent of these companies reported losses or were not required to pay taxes; just 31,472 companies had more than INR 10 million as income before tax; and a meager 1,044 had income of more than INR 1 billion.50 The much discussed information technology (IT) sector had 25,031 taxpayers, just 4.1 percent of total corporate taxpayers, and at INR 211.95 billion this sector accounted for just 8.69 percent of total tax collections.

The indirect tax base does not reflect that of the world’s third-largest economy on purchasing power parity terms. Of the 58.47 million enterprises identified in the Sixth Economic Census (2012–13), just 5.4 million and 1.7 million, respectively, were sales tax and service tax assessees.51

Other measures of tax collection similarly reflect a limited base. The country has the lowest share of property tax revenue as a proportion of total tax revenue among all G20 economies (see figure 8). This is significant because property taxes are the largest source of financing for cities. Indian cities are seriously financially constrained. Consequently, they suffer from a massive urban infrastructure deficit.

A report from the McKinsey Global Institute estimates that in 2008, India’s annual urban per capita public spending, including both capital and operational expenditures, was just $50, which amounts to 14 percent of China’s $362 and less than 3 percent of the United Kingdom’s $1,772. In fact, India’s per capita capital expenditure was just $17, or 13 percent of South Africa’s $127. This falls to a measly $1 in tier 3 and 4 cities.52 The report estimates a total spending of $2.2 trillion, largely on transportation and affordable housing, over the 2010–2030 period, or a per capita capital expenditure of $134, nearly eight times the current level.53

Infrastructure Financing Deficit

The cumulative effect of all this unrealized money is to put a natural limit on the resources available for public investment, especially in infrastructure. The government’s Planning Commission, which formulated India’s five-year plans before Prime Minister Modi took office, estimated that India would require infrastructure investments worth $1 trillion in the Twelfth Five Year Plan period of 2012–2017.54 A large share of this was to come from public financing. But not only do the state and central governments lack the fiscal space to mobilize anything remotely close to that amount, but the banking system is simply too small to finance more than a small part of this requirement. The country’s capital markets remain too small, and it may be unrealistic to expect them to expand sufficiently and fast enough to meet the financing needs. In any case, there is only so much that credit intermediation can do when the GDS is stuck in the low thirties and three-fourths of savings are invested in illiquid and unproductive property and gold assets.

How can India finance its massive requirements? The size of the problem is illustrated by housing. The Housing for All program targets the construction of around 20 million units just in urban areas over the next five years. Most of the demand for the units would come from those in lower income groups. A conservative assessment shows that the total credit requirement for this program would be about INR 20,000 billion.55 But the total allocation for affordable housing in the entire twelfth plan period is only INR 350 billion. In fact, the total bank credit outstanding on October 30, 2015, was just INR 6,959 billion, and the incremental bank credit for all housing for the year beginning October 31, 2014, was just INR 1,042 billion.

Another example is the national highways project. At a cost of INR 130 million per kilometer, the construction target of 25,000 kilometers for 2016–2017 would require investment of about INR 3,250 billion.56 Assuming three-quarters debt and a similar proportion of this to come from banks, the total bank credit required for the projects of this year alone would be around INR 1,800 billion. In contrast, for the year ending May 27, 2016, the total incremental bank credit to the entire infrastructure and construction sectors was a mere INR 27 billion. In fact, the total outstanding bank credit to roads sector was itself only INR 1,827 billion.57

In 2014–2015, the total incremental bank credit to the infrastructure sector was INR 881 billion (about $14 billion), of which four-fifths, or INR 706 billion, went to just the energy sector, leaving transportation, airports, ports, telecommunications, gas, and urban infrastructure to fight over less than $3 billion. In fact, the total incremental industrial credit flow was INR 1,411 billion, less than half that in 2013–2014. The total equity issuance by all types of firms was just INR 170 billion, an amount that was more or less unchanged from that of the preceding four years. The total amount mobilized by nonfinancial public and private corporations through private placement was INR 1,276 billion.

The Twelfth Plan estimates 50 percent of the INR 65.0 trillion infrastructure investment to come from budget financing and the rest from various private sources. The assumptions are straight out of the Chinese storybook—GDS and infrastructure investment are to reach 48.2 percent and 10.7 percent of GDP, respectively, by 2016–2017.58 But both shares have been far lower than estimates, and declining, for each of the first three plan years, with the latest available figures, for 2014–2015, showing shares of 29 percent and 3.2 percent of GDP, respectively.59 The difference is one of orders of magnitude.

The government of India’s total capital expenditure has itself been just a third of the total budgetary support estimated. Owing to tepid credit growth, incremental bank lending for infrastructure financing, the largest source for the sector, was just INR 881.7 billion, compared with the estimated INR 1,436.54 billion in 2014–2015. Similar shortfalls exist in all the funding sources. Because of the pre-existing funding gap of 22.5 percent (INR 14.6 billion) of the estimated INR 65.0 trillion, the plan’s investment deficit to date is more than 50 percent.

In absolute terms, for the entire twelfth plan period, the total equity investments, including domestic equity and FDI, and external commercial borrowings to finance infrastructure are estimated at INR 7,325 billion, just 11 percent of the total resources required. In recent years, private equity has emerged as the largest financing source of FDI, and commercial real estate, e-commerce, and financial services have been the biggest sectoral destinations.60

Certain features stand out in infrastructure financing. Global experience, especially outside the United States, shows that the vast majority of infrastructure financing comes from domestic bank loans. The conventional wisdom with respect to bond financing is refuted by available evidence. Bonds have formed less than 10 percent of the global infrastructure financing sources, with the vast majority concentrated in the United States.61 Annual infrastructure bonds issuances for all emerging economies, excluding China, have been in the $10 billion to $15 billion range in recent years.62

In any case, the global pool of infrastructure finance available for emerging economies is very small. The most funds raised in a year by infrastructure debt funds was $4.7 billion in 2011, and their contribution has been declining since then.63 Infrastructure equity funds, which leverage capital from insurance and pension funds, while larger, also form a small share of the total infrastructure financing and are concentrated in developed markets, especially the United States and Europe. Globally, they formed just above $36 billion in 2013.64 The data provider Preqin has reported that the total value of all unlisted infrastructure funds under management raised in the period between September 2007 and March 2014 was $282 billion. Of this, the dry powder (unallocated) available was $107 billion, of which just $13 billion was earmarked for Asian markets, including China.65

Moreover, structured equity or debt financing—in the form of infrastructure equity funds, infrastructure debt funds, or bonds—is rarer still in the construction phase, when bank loans are the most risk-appropriate form of financing. Finally, asset-liability mismatches arising from domestic currency revenue streams make foreign capital a costly source of infrastructure financing. The risks of sudden stops and capital flow reversals, from which no country is spared, with their attendant currency volatility only add to the costs of such financing. Simply stated, it is unrealistic to expect foreign capital to significantly close the large financing gap.

In this context, it is worrisome that at a time when public investments in infrastructure ought to have been climbing, the capital expenditure of the government of India as a share of GDP has been steadily declining for many years. At 1.71 percent of GDP, it was a mere $40 billion in 2015–2016 (see figure 9). The budget for 2015–2016 seeks to reverse this declining trend in the capital expenditure of the government. Steady increase in capital expenditure by the government should continue for many years. The fiscal latitude to do so must be maintained. In connection with this discussion, it should be noted that the period of high growth (2003–2008) coincided with a sharp increase in the tax-to-GDP ratio of 4 percentage points.

Capital expenditure by corporations has also been on a continuously declining trajectory since 2011 (see figure 10).66 It was 27 percent lower in 2014–2015 than in 2013–2014 and is expected to be still lower in 2015–2016. Though this declining trend is more likely a cyclical slowdown, the low base, less than INR 10,000 billion (about $16 billion), expected for 2015–2016 is a matter of great concern for a country that aspires to an 8-to-10-percent GDP growth rate.

As India explores various alternatives for financing infrastructure, it would do well to keep in mind the dominant experience from across the world and understand that domestic bank loans should form the lion’s share of infrastructure financing. Alternative sources, such as structured debt and equity, can contribute only marginally. This again underscores the importance of immediately restoring bank balance sheets and recapitalizing banks. The size of the banking sector imposes another constraint. The small size of the banking sector calls for prioritized action to expand the breadth and depth of financial intermediation by the country’s banking sector, including privatization and liberalization to allow foreign investments.

To finance infrastructure, then, India will have to embrace all available financial intermediation channels—domestic and foreign, equity and debt, bank and capital markets. In each case, policy action should expedite a market deepening and broadening by expanding market participation, both on the demand side and on the supply side.

Notes

34 The East Asian countries referred to include China, Indonesia, Malaysia, Philippines, South Korea, Thailand, and Vietnam.

35 Robert C. Allen, “Technology and the Great Divergence,” Discussion Paper no. 548, Department of Economics, University of Oxford, April 2011, http://www.economics.ox.ac.uk/materials/papers/5001/paper548.pdf.

36 Nikhil Gupta, “Indian Economy Update,” Nirmal Bang, September 22, 2015, http://www.nirmalbang.com/Upload/Savings%20&%20Rate%20Cuts-Economy%20Update-22%20September%202015.pdf.

37 Richard Kersley and Markus Stierli, “Global Wealth in 2015: Underlying Trends Remain Positive,” Credit Suisse, October 13, 2015, https://www.credit-suisse.com/in/en/about-us/responsibility/news-stories/articles/news-and-expertise/2015/10/en/global-wealth-in-2015-underlying-trends-remain-positive.html.

38 “Improving India’s Savings Rate,” LiveMint, February 16, 2014, http://www.livemint.com/Opinion/ZDgCdU87oxU6cPnClpc2yN/Improving-Indias-savings-rate.html.

39 Avantika Chilkoti, “India and Gold (3): The Story in Charts,” beyondbrics (blog), Financial Times, November 1, 2013, http://blogs.ft.com/beyond-brics/2013/11/01/india-and-gold-3-the-story-in-charts/#axzz2jSJKumDO.

40Petya Koeva Brooks, “IMF Survey: Households Hit Hard by Wealth Losses,” International Monetary Fund, June 24, 2009, http://www.imf.org/external/pubs/ft/survey/so/2009/num062409a.htm.

41 Courtney Fingar, “India Grabs Investment League Pole Position,” Financial Times, September 29, 2015, https://next.ft.com/content/fdd0e3c2-65fc-11e5-97d0-1456a776a4f5.

42 All figures are taken from the databases of the RBI and EIU.

43 The incremental nonfood bank credit as a share of GDP changes little even if one combines all other forms of credit, including capital markets (bond and equity) and commercial paper issuances.

44 Sandrine Rastello, “India Now Has a Keqiang Index—and it Paints a Bleaker Picture,” LiveMint, December 15, 2015, http://www.livemint.com/Politics/8MVMAKBJTnO5jf05sh2BDI/India-now-has-a-Keqiang-Indexand-it-paints-a-bleaker-pictur.html.

45 Prashant Prakash, “Property Taxes Across G20 Countries: Can India Get It Right?” Oxfam India Working Paper Series no. 15, Oxfam India and the Center for Budget and Governance Accountability, January 2013, https://www.oxfamindia.org/sites/default/files/Working%20paper%2015.pdf.

46 Income Tax Department, “Income Tax Return Statistics, Assessment Year 2012-13,” Government of India, http://www.incometaxindia.gov.in/Documents/IT-%3DReturn-AY-2012-13-Final.pdf.

47 “SOI Tax Stats – Individual Statistical Tables by Filing Status,” U. S. Internal Revenue Service, last updated August 31, 2016, https://www.irs.gov/uac/soi-tax-stats-individual-statistical-tables-by-filing-status.

48 Data from the RBI database, http://dbie.rbi.org.in/.

49 “Income Tax Return Statistics, Assessment Year 2012–13.”

50 “Revenue Foregone under the Central Tax System: Financial Years 2012–13 and 2013–14,” appendix, in Union Budget Document 2014–15 (New Delhi: Government of India and National Informatics Centre), http://indiabudget.nic.in/budget2014-2015/ub2014-15/statrevfor/annex12.pdf.

51 “India Market Strategy: The Surge of the States,” Credit Suisse, July 20, 2015, 7, https://doc.research-and-analytics.csfb.com/docView?sourceid=em&document_id=x645145&serialid=U%2fLJegUUPPBEvFF0IRnS5ZKAe3xl5JZLLLOllZTBPNw%3d.

52 These tiers are defined by population in the McKinsey Global Institute report. Tier 1 cities have populations greater than 4 million; tier 2 cities have populations between 1 and 4 million; and tier 3 and tier 4 cities have populations under one million.

53 Shirish Sankhe et al., India’s Urban Awakening: Building Inclusive Cities, Sustaining Economic Growth (Mumbai: McKinsey Global Institute, 2010).

54 Working Sub-Group on Infrastructure, “Infrastructure Funding Requirements and Its Sources over the Implementation Period of the Twelfth Five Year Plan (2012–2017),” Planning Commission of India, http://planningcommission.gov.in/aboutus/committee/wg_sub_infrastructure.pdf.

55 This credit requirement figure assumes an average unit cost of Rs 1 million ($14,950) per house.

56 Megha Manchanda, “Private Sector Set to Make a Big Splash on Highways,” Business Standard, July 4, 2016, http://www.business-standard.com/article/economy-policy/private-sector-set-to-make-a-big-splash-on-highways-116070400004_1.html.

57 Reserve Bank of India, Sectoral Deployment of Bank Credit, May 2016, https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=37374.

58 Manchanda, “Private Sector Set to Make a Big Splash on Highways.”

59 Data from the RBI and BMI databases.

60 Arpan Sheth et al., “India Private Equity Report 2015,” Bain & Company, May 7, 2015, http://www.bain.com/publications/articles/india-private-equity-report-2015.aspx.

61 Dan Tallis and Muhabbat Mahmudova, “Global Project Finance Infrastructure Review Full Year 2013,” Infrastructure Journal,January 2014.

62 Torsten Ehlers, “Understanding the Challenges for Infrastructure Finance,” BIS Working Paper no. 454, Bank for International Settlements, August 2014, http://www.bis.org/publ/work454.pdf.

63 Paul Bishop, “The Rise of Infrastructure Debt: New Opportunities and Investor Interest,” Infrastructure Spotlight 5, no. 2 (newsletter), Preqin, February 2013, https://www.preqin.com/docs/newsletters/inf/Preqin_INFSL_Feb_2013_Infrastructure_Debt_Opportunities.pdf.

64 Ehlers, “Understanding the Challenges for Infrastructure Finance.”

65 “The Q3 2014 Prequin Quarterly Update: Infrastructure,” Preqin, 2014, https://www.preqin.com/docs/quarterly/inf/Preqin-Quarterly-Infrastructure-Update-Q3-2014.pdf.

66 Anantha Nageswaran, “Do Interest Rates Matter in India?” Pragati, September 21, 2015, http://pragati.nationalinterest.in/2015/09/do-interest-rates-matter-in-india/.