Addressing the Kautilya Economic Conclave, she expressed hope that the rules of the game still play out and countries recognize the durability of partnership. She also said that investment is once again leading growth.
“We have seen with dismay that private investment is not picking up but now, the results are beginning to show. Investment is once again leading growth,” Thakur said, adding that revival in investment is taking place against the backdrop of a challenging global environment, where capital remains constrained.
She also said the sharp rise in global bond yields poses a challenge for emerging markets and that they are no longer only about monetary policy or fiscal deficit but also about Artificial Intelligence (AI).
“Bond markets have always been important but are assuming a larger and larger share of it,” Thakur said, adding that government bonds now amount to more than 80% of the global GDP, making sovereign bond markets the largest pool of investments and debt and the benchmark for the price of capital across the financial system.
Noting that governments are borrowing heavily while investors are demanding greater compensation for inflation, fiscal uncertainty, and duration risk, the secretary said: “This has pushed up term premium and long-term yields…For emerging markets, this poses a huge challenge. Global bond markets set the opportunity cost of capital, and added to this aspect are global imbalances.”
AI capital
Thakur further highlighted that another dimension to the changing global capital landscape, which is beginning to change the demand for and potentially the price of capital is the AI investment cycle.“This is not limited to software or computing, it requires data centres, semiconductors, reliable electricity and transmission capacity, investments into which are creating significant demand for capital and are increasingly being financed through debt,” she said.
More investments would require greater demand for savings, while higher borrowings would mean that financial markets have to absorb a large supply of debt.
Global bond yields, therefore, cannot be understood only in terms of monetary policy or fiscal deficits anymore and that the scale of the AI buildout is now part of that story.
“Measures can be announced, but credibility that our country has earned is one that is gained through sustained efforts,” she said, stressing the importance of a consistent and prudent fiscal path.
Thakur also highlighted the durability of India’s international economic partnerships, pointing to the signing of several free trade agreements in the last few years.