Massive Investments in Artificial Intelligence Is One Of The Reasons for Surging Global Bond Yields!! Claims Economic Affairs Secretary

Rising global bond yields driven by heavy government borrowing and massive artificial intelligence investments present a severe challenge to developing economies, Department of Economic Affairs Secretary Anuradha Thakur said on Sunday.

Speaking at a financial industry gathering, Thakur highlighted that escalating public debt across major economies alongside capital-intensive technological shifts is driving up global borrowing costs. The tightening financial conditions threaten to squeeze capital inflows into emerging market economies, forcing policymakers to navigate complex external headwinds.

Heavy Borrowing and AI Capex Driving Up Global Capital Costs

According to the Economic Affairs Secretary, the global economic landscape is witnessing a structural shift where fiscal expansion in advanced nations is competing directly with private sector technology investments.

"Heavy government borrowing and rising AI investment are increasing global demand for capital and pushing up its cost," Thakur stated, noting that emerging markets face compounding pressures from rising bond yields, elevated global interest rates, and geostrategic frictions.

As developed market sovereign bonds offer higher returns, foreign portfolio investors are reallocating capital away from higher-risk emerging markets. This dynamic has placed upward pressure on sovereign borrowing costs and currency valuations across Asia and other developing regions.

Fiscal Discipline and Reforms Protect India from Capital Volatility
Addressing India's economic position amidst these global disruptions, Thakur stressed that steady policy implementation and fiscal consolidation have insulated the domestic market from extreme volatility.

"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," Thakur emphasised.

She pointed out that despite external headwinds, India's economic fundamentals remain solid. Prudent macroeconomic management, structural deregulation, and targeted reforms continue to drive private investment cycles within the country, supported by steady foreign direct investment inflows and healthy domestic capital buffers.

Developing Nations face Tighter Financial Conditions

The surge in global bond yields comes at a time when central banks worldwide are maintaining restrictive monetary stances to manage persistent inflation risks. For developing nations with significant dollar-denominated debt, elevated global yields increase debt servicing costs and restrict domestic policy space.

Thakur noted that maintaining credibility through fiscal consolidation remains vital for emerging economies seeking to retain investor confidence. While global capital markets face prolonged tightness, countries with strong domestic demand, controlled deficits, and ongoing structural reforms are best positioned to withstand external capital realignments.