Rising global capital costs pose challenge for emerging economies: Anurada Thakur
Rising Global Capital Costs Pose a Challenge for Emerging Economies
Theindiapostdaily.com – Rising global capital costs pose a growing challenge for emerging economies, according to Economic Affairs Secretary Anuradha Thakur. Speaking at a late-evening session of the Kautilya Economic Conclave in New Delhi, she said countries must prepare for disruption, adapt quickly and use changing conditions to create opportunity.
Thakur said resilience, adaptability and flexibility have become increasingly important for economies and businesses. However, developing these strengths requires investment, making access to affordable capital more important at a time when global borrowing conditions are tightening.
“Resilience, adaptability, and flexibility now seem to matter equally if not more. But they come with the cost of more capital,” she said.
For years, many businesses focused on lower costs through lean inventories, just-in-time production and closely integrated global supply chains. That approach is now being reconsidered as companies place greater value on reliable supply networks, spare capacity and the ability to withstand shocks. These changes can strengthen resilience, but they also increase financing requirements.
Bond Markets Are Raising Borrowing Pressures
A key concern is the growing influence of sovereign bond markets on the price of money. Government securities account for more than 80% of global gross domestic product, giving sovereign borrowing a major role in shaping financial conditions across the world.
Governments are raising large sums while investors seek higher compensation for risk. This has lifted term premia and longer-term bond yields, including in advanced economies. For emerging markets, higher global rates can make it costlier to attract investment and refinance existing debt.
Rising global capital costs pose difficulties that cannot be addressed through domestic policy alone. Borrowing costs are also influenced by the supply of government debt, investor risk assessments and competition among public and private borrowers for global savings.
Thakur also highlighted the changing role of trade policy. Decisions on trade are increasingly shaped by security concerns and geopolitical priorities rather than only by comparative advantage, which can make the movement of goods and capital less efficient.
“When trade is organized around security and geostrategic concerns, and not comparative advantage, goods and capital move less efficiently, surpluses and deficits become sources of friction, and the price of capital further rises for everyone,” she said.
AI Infrastructure Adds to Global Demand for Savings
The rapid build-out of artificial intelligence infrastructure is another factor affecting global financing conditions. The AI economy requires more than software and computing tools: it also depends on data centres, semiconductor capacity, dependable electricity supplies and expanded power-transmission networks.
Much of this investment is debt-financed, adding to the demand for savings and increasing the volume of borrowing financial markets must absorb. Thakur said global yields can no longer be explained only by monetary policy or fiscal deficits because the scale of AI-related infrastructure investment is now part of the picture.
“More investment means greater demand for savings, while higher borrowing means financial markets have to absorb a large supply of it. Global yields, therefore, cannot be understood only in terms of monetary policy and fiscal deficit anymore. The scale of the AI build-out is now part of that story,” Thakur said.
For India and other emerging economies, the task is to fund digital infrastructure, energy systems and industrial expansion while facing stronger competition for finance. Maintaining investor confidence and managing borrowing needs carefully can help countries reduce the premium they pay for capital.
FAQ: What Higher Global Capital Costs Mean for India
Why do higher global bond yields matter for India?
Higher global bond yields can increase the cost of raising funds internationally and influence financing conditions for businesses and governments. They can also make investors more selective when allocating money to emerging markets.
What is driving the increase in capital costs?
Major drivers include extensive government borrowing, higher investor risk premiums, geopolitical and trade-related disruptions, and large investment needs linked to artificial intelligence infrastructure.
How can emerging economies respond?
Emerging economies can focus on resilient growth, prudent borrowing, credible economic policies and investment in infrastructure that supports long-term productivity. These steps can help preserve confidence even when global financial conditions become more demanding.