Capital limited but confidence in rules of trade, fiscal path of large economies: DEA secretary
Economic Affairs Secretary Anuradha Thakur said trade shaped by security and geopolitical considerations could deepen global imbalances, raise capital costs and create friction. She said private investment was showing signs of revival despite tight global financial conditions, while the AI investment cycle was adding to demand for capital and debt.
New Delhi: Economic affairs secretary Anuradha Thakur addressed the Kautilya Economic Conclave, emphasizing that when trade is organized around security and geostrategic concerns, surpluses and deficits become sources of friction and the cost of capital rises. She expressed optimism that the rules of the game remain in place and that countries acknowledge the longevity of partnerships.
Thakur also highlighted that investment, once again, is driving growth despite a challenging global environment where capital remains constrained.
The secretary noted that the sharp increase in global bond yields presents a challenge for emerging markets, which are no longer solely influenced by monetary policy or fiscal deficits. Instead, these markets must also contend with Artificial Intelligence (AI) considerations. Government bonds now constitute over 80% of 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.
Thakur pointed out that governments are borrowing heavily while investors demand greater compensation for inflation, fiscal uncertainty, and duration risk, leading to an escalation in term premiums and long-term yields. For emerging markets, this situation poses a significant challenge as global bond markets determine the opportunity cost of capital and are increasingly shaped by global imbalances.
Another emerging aspect of the global capital landscape, Thakur emphasized, is the AI investment cycle. This cycle extends beyond software and computing, requiring data centers, semiconductors, reliable electricity, and transmission capacity. Investments in these areas are driving substantial demand for capital and are increasingly financed through debt.
Consequently, global bond yields cannot be comprehended solely in terms of monetary policy or fiscal deficits; the scale of the AI buildout is now integral to this narrative.
Thakur stressed the importance of a consistent and prudent fiscal path, citing the durability of India's international economic partnerships. She highlighted the signing of several free trade agreements in recent years as evidence of these enduring relationships.
Written by urgent.news from The Economic Times - Economy's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
