Synopsis
Rising global bond yields and surging capital demand from the AI investment cycle could increase funding pressures for emerging markets, Economic Affairs Secretary Anuradha Thakur said. Despite the global squeeze, India remains an attractive investment destination, with record FDI inflows reflecting confidence in its macroeconomic stability, reforms and long-term growth prospects.
A surge in global bond yields and a fresh wave of capital demand from the artificial intelligence boom could make funding more expensive for emerging economies, but India is continuing to attract record foreign investment as global companies increasingly look to build capacity in the country, Economic Affairs Secretary Anuradha Thakur said.
Thakur, speaking at the Kautilya Economic Conclave, said the changing dynamics of global debt markets were becoming increasingly important for economies that rely on international capital. Governments worldwide are borrowing heavily, while investors are demanding greater returns to compensate for inflation, fiscal uncertainty and longer-duration risks.
The scale of sovereign borrowing illustrates the growing importance of bond markets. Government bonds globally are now equivalent to more than 80% of world GDP, making them the largest pool of investable debt, she said.
For emerging markets, higher yields in major global bond markets can raise the cost of raising funds and influence the flow of international capital. Thakur said the traditional focus on central bank policy and government fiscal positions was no longer enough to explain movements in bond yields.
A major new source of demand is the investment required to support the AI economy, including data centres, semiconductor facilities and dependable power infrastructure.
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“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.
Record FDI points to India’s changing pitch
India, however, continues to attract substantial foreign capital despite the tighter global funding environment. Gross FDI inflows rose to a record USD 97 billion in FY26, while the country received USD 29.3 billion in the first quarter of the current financial year.
Thakur said the nature of those investments was changing, with multinational companies increasingly treating India as a market in which to establish production and other long-term capacities, rather than primarily as a destination for low-cost manufacturing.
“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.
She linked the sustained investor interest to India's progress on fiscal consolidation, price stability, banking-sector strength and economic reforms.
Stability will matter as global money gets dearer
Thakur said India would need to preserve its macroeconomic credibility as international capital becomes more expensive and competition for funds intensifies.
Fiscal discipline, stable economic policies and continued reforms would remain important in protecting investor confidence, while stronger and more durable trade relationships could help India deepen its integration with global supply chains.
The comments come at a time when the global investment cycle is being reshaped by both higher financing costs and the massive infrastructure requirements of new technologies.
For emerging economies, Thakur's message was that attracting capital would increasingly depend not only on offering competitive costs, but also on maintaining policy stability and creating conditions for businesses to commit long-term investments.
