Global Bond Yields Challenge Emerging Markets; India Sees FDI Confidence
DEA Secretary Anuradha Thakur explains how rising global bond yields impact emerging markets while highlighting India's record FDI inflows.
As rising global bond yields make capital increasingly expensive for emerging economies, India continues to demonstrate robust investor confidence through record-breaking foreign direct investment (FDI) inflows. This observation was made by Anuradha Thakur, Secretary of the Department of Economic Affairs (DEA), Ministry of Finance, during the Kautilya Economic Conclave.
The Rising Cost of Capital
Thakur highlighted that the global bond market is playing an unprecedented role in determining the cost of capital. With government bonds now accounting for more than 80 per cent of global GDP, sovereign bond markets have become the largest pool of investable debt worldwide.
The Secretary noted that higher yields present a significant hurdle for emerging markets because the global bond market effectively sets the opportunity cost of capital. Investors are increasingly demanding higher compensation to offset risks associated with:
- Inflationary pressures
- Fiscal uncertainty
- Duration risks
The AI Factor in Capital Markets
In a modern twist to traditional economics, Thakur pointed out that global bond yields can no longer be understood solely through the lens of monetary policy and fiscal deficits. The massive investment cycle driven by Artificial Intelligence (AI) is now a major driver of capital demand.
The urgent need for infrastructure to support AI—including data centres, semiconductors, and reliable electricity grids—is adding significant pressure to global capital markets, further influencing the landscape of available liquidity.
India’s FDI Strength and Shifting Patterns
Despite these global headwinds, India's macroeconomic stability has acted as a magnet for international capital. Thakur cited the massive surge in FDI as a primary indicator of global trust in India's economic fundamentals.
Key statistics shared include:
- Record Inflows: Gross FDI inflows reached an all-time high of USD 97 billion in the 2025-26 financial year.
- Current Momentum: Inflows for the first quarter of the current financial year have already stood at USD 29.3 billion.
A significant shift in how the world views India was also noted. Rather than seeing the country merely as a low-cost manufacturing hub, global corporations are increasingly treating India as a strategic location to build capacity. This transition is being driven by India's fiscal consolidation, price stability, a strengthened banking sector, and ongoing structural reforms.
The Path Ahead: Stability and Reform
Looking forward, Thakur emphasized that as global capital remains constrained and expensive, India must remain vigilant. Maintaining fiscal credibility, macroeconomic stability, and policy consistency will be vital to keeping investor interest high. Furthermore, she stressed the importance of fostering durable trade partnerships and continuing domestic reforms to sustain this momentum in a volatile global environment.