Global yields rise, India’s FDI stays strong

A record USD 97 billion in foreign direct investment (FDI) flowed into India in the fiscal year 2025-26, while the current quarter saw USD 29.3 billion in inflows, according to Economic Affairs Secretary Anuradha Thakur. Despite rising global bond yields driven by the artificial intelligence boom and heightened capital demand, India remains a magnet for foreign investment, Thakur stated at the Kautilya Economic Conclave.

Thakur explained that the evolving dynamics of global debt markets now play a crucial role for nations heavily reliant on international capital. Governments around the globe are taking on extensive borrowing, while investors seek higher returns to offset inflation, fiscal uncertainty, and longer-duration risks. Government bonds globally now represent over 80% of world GDP, making them the largest pool of investable debt, she said.

Higher yields in major global bond markets can elevate the cost of raising funds for emerging economies like India and influence the flow of international capital. Thakur emphasized that central bank policies and fiscal positions alone no longer adequately explain fluctuations in bond yields. The burgeoning AI economy, involving data centers, semiconductor facilities, and stable power infrastructure, is now a significant factor influencing bond yields.

Despite global funding constraints, India continues to attract substantial FDI. Thakur noted that the nature of these investments is shifting, with multinational corporations increasingly viewing India as a location to establish long-term production and other capacities, rather than simply as a low-cost manufacturing destination. She linked the ongoing investor interest to India's progress in fiscal consolidation, price stability, a robust banking sector, and economic reforms.

Thakur stressed that as international capital becomes more expensive, India must maintain its macroeconomic credibility to protect investor confidence. Fiscal discipline, stable economic policies, and continuous reforms would remain vital in safeguarding investor trust. Additionally, stronger and more durable trade relationships could help deepen India's integration with global supply chains.