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Rising global bond yields are making capital more expensive for emerging markets, but India's macroeconomic stability and record foreign direct investment inflows reflect continued investor confidence in the country's fundamentals, Anuradha Thakur, Secretary, Department of Economic Affairs, Ministry of Finance, said.
Speaking at the Kautilya Economic Conclave, Thakur said global bond markets were becoming increasingly important in determining the cost of capital as governments borrow heavily and investors demand greater compensation for inflation, fiscal uncertainty and duration risks. "Bond markets have always been important, but are resuming a larger and larger share of it. Government bonds alone now amount to more than 80 per cent of global GDP, making sovereign bond markets the largest pool of investable debt," she said. She said higher global yields posed a significant challenge for emerging markets as the global bond market sets the opportunity cost of capital. The increase in demand for capital from the artificial intelligence investment cycle, including for data centres, semiconductors and reliable electricity infrastructure, could add to pressure on global capital markets, she said. "Global bond yields, therefore, cannot be understood only in terms of monetary policy and fiscal deficits anymore. The scale of the AI buildout is now part of that story," Thakur said. Against this backdrop, she said India's ability to attract foreign direct investment was an important indicator of confidence in its economic fundamentals. Gross FDI inflows reached an all-time high of USD 97 billion in financial year 2025-26, while inflows in the first quarter of the current financial year stood at USD 29.3 billion. Thakur said the pattern of FDI was also changing, with global companies increasingly viewing India as a destination to build capacity rather than merely as a low-cost production base. She attributed this confidence to India's fiscal consolidation, price stability, stronger banking sector and sustained reforms. "The sectoral pattern of flows shows that global capacity is not simply viewing India as a low-cost production base, but increasingly as a place to build capacity," she said. Thakur said maintaining fiscal credibility, macroeconomic stability and policy consistency would be critical as global capital remains constrained and expensive. She also highlighted the importance of durable trade partnerships and continued reforms in sustaining investor confidence. (ANI)
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