Rising global bond yields pose huge challenge to emerging markets: DEA secy | Economy & Policy News

Economic Affairs Secretary Anuradha Thakur on Sunday said rising global bond yields pose a “huge challenge” to emerging markets, but India hopes that the rules of the game will still play out in a way that will benefit every country and boost global growth.

 

“We have followed this path through steady reform and prudent macroeconomic management. The hope is that the rules of the game will still play out, countries will recognise that it’s the durability of partnerships with fair rules around the globe, which will help everyone to move forward and boost global growth, which benefits everyone,” Thakur said at the Kautilya Economic Conclave organised by the Ministry of Finance.

  

Thakur said the global capital landscape is changing, with government bonds alone now amounting to more than 80 per cent of global GDP, making sovereign bond markets the largest pool of investable debt and a benchmark for the price of capital across the financial system.

 

With governments borrowing heavily, investors are demanding greater compensation for inflation, fiscal uncertainty and duration risk, Thakur said. US Treasury bond yields have hit 5.34 per cent, the highest since 2002, and Japan’s ten-year yields are at their highest since 1996. “For emerging markets, this poses a huge challenge, because the global bond markets have the opportunity cost of capital, and added to this aspect are global imbalances. When trade is organised around security and geostrategic concerns, over comparative advantages, goods and capital move less efficiently, surpluses and deficit become sources of friction, and the price of capital further rises for everyone around the world,” she added.

 

The investment cycle around artificial intelligence (AI) is adding to global demand for capital, with the buildout requiring large investments in data centres, semiconductors, electricity and transmission capacity. A growing share of these investments is being financed through debt, Thakur said.

 

“Global bond yields, therefore, cannot be understood only in terms of monetary policy and fiscal deficits anymore. The scale of the AI build-out is now part of that story,” she said.

 

After a prolonged period of weak private investment, the trend is now beginning to turn, Thakur said. Capital formation in the first quarter of the current financial year (FY27) grew at its fastest pace in more than three years, while private firms are committing to new projects in power, data centres and metals. Banks are also lending more to industry, including large and medium firms as well as micro and small enterprises, she said.

 

Thakur said while foreign direct investment remains a vital source of non-debt finance, employment and technology transfer for any economy, what is interesting for India is that the sectoral pattern of flows shows that global capital is not simply viewing India as a low-cost production base, but increasingly as a place to build capacity. “And we feel confident that this is a demonstration and a show of confidence in fundamentals that India has demonstrated. Our macroeconomic choices have been deliberate,” she added.

 

India recorded gross FDI inflows of a record $97 billion in 2025-26 (FY26), with the momentum continuing into the current financial year. Gross FDI inflows stood at $29.3 billion in the first quarter of FY27, she said.

 

Thakur’s emphasis on FDI comes against a backdrop of weak net inflows. Net FDI into India was around $7 billion in FY26, while the annual average was about $40 billion between FY20 and FY22, according to official data.

 

The official pointed to fiscal consolidation, price stability, a sound banking system and strong foreign exchange reserves as key elements of India’s macroeconomic credibility. The Centre’s fiscal deficit has declined from 9.2 per cent of gross domestic product (GDP) in FY21 to a budgeted 4.3 per cent this year.

 

“These are not India-specific choices. Fiscal credibility, price stability, and a sound banking system are the foundation for any country that hopes to borrow at a reasonable price when capital is scarce and expensive,” Thakur said.

 

Thakur said India’s growing network of trade agreements and its record of fiscal discipline, reforms and deregulation would be important in sustaining investor confidence.

 

“Credibility that our country has earned is one that is gained through sustained efforts, sustained and maybe not the easiest path of fiscal consistency, discipline, as also reforms and deregulation,” she said.