Economic Affairs Secretary Anuradha Thakur has flagged rising global bond yields and debt-financed artificial intelligence (AI) investments as emerging challenges that could increase the cost of capital, particularly for developing economies.
Speaking at the Kautilya Economic Conclave, Thakur said government bonds now account for more than 80% of global gross domestic product (GDP), making sovereign debt markets an important benchmark for capital costs across the financial system.
As governments increase borrowing, investors are seeking greater compensation for inflation, fiscal uncertainty and duration risks, she said.
Thakur pointed out that the US Treasury bond yield has touched 5.34%, its highest level since 2002, while Japan's yields have reached their highest since 1996.
AI investments add to global capital demand
Thakur said the rapid expansion of AI infrastructure was adding another dimension to global capital markets. Building data centres, semiconductor capacity, electricity generation and transmission infrastructure requires substantial investments, with an increasing proportion being funded through debt.
As a result, global bond yields can no longer be assessed solely through monetary policy and fiscal deficits, with the scale of AI investments also influencing capital demand.
She said geostrategic and security considerations in global trade could further reduce the efficient movement of goods and capital and increase financing costs.
India's private investment shows recovery
Thakur highlighted signs of improvement in India's private investment cycle after an extended period of weakness.
Capital formation in Q1 FY27 grew at its fastest pace in more than three years, while private companies are committing investments in sectors including power, data centres and metals. Banks have also increased lending to large and medium industries as well as micro and small enterprises.
Foreign direct investment (FDI) is increasingly helping India build capacity rather than merely serving as a low-cost manufacturing base, she said.
India received gross FDI inflows of $97 billion in FY26, while inflows stood at $29.3 billion in Q1 FY27. Net FDI inflows were around $7 billion in FY26, reflecting investor repatriations and overseas investments by Indian companies.
Thakur said these trends reflected confidence in India's economic fundamentals and deliberate macroeconomic policy choices.
