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Informist, Sunday, Oct. 4, 2026

NEW DELHI – In the last few years, India has seen with "dismay" that private investment was not picking up, but the results are now beginning to show as investment is once again leading growth, Economic Affairs Secretary Anuradha Thakur said Sunday. "Capital formation as seen in Apr-Jun grew at the fastest pace in last three years...private firms are committing to new projects, like power, data centres and banks are lending more to industry – to large and mediumm firms as well as to micro and small industries," she said while speaking at the Kautilya Eonomic Conclave 2026 here. 

India's GDP grew 7.8% in the June quarter. Data showed that during the June quarter, growth on the expenditure side was led by an 11.9% rise in gross fixed capital formation, which reflected higher government capital expenditure during the quarter. Private final consumption expenditure grew 7.1% in the June quarter against 6.8% growth in the year-ago period. Government final consumption expenditure rose 4.3% in Apr-Jun, moderating from 4.5% in the June quarter of FY26.

The high government expenditure over the last few years which has hugely contributed to robust GDP growth seen in the post-pandemic years was aimed at reviving private investment, however, it has remained lacklustre so far. Thakur, however, voiced optimism that private investment is picking up pace.

India is showing "consistent commitment to public investment in capex," she said. The Narendra Modi government has increased capital expenditure by over six times since 2014-15 (Apr-Mar) to INR 12.21 trillion in FY27. The Centre's effective capital expenditure for FY27, including grants-in-aid for the creation of capital assets, is projected at INR 17.15 trillion, up 22.1% from the revised estimate of INR 14.04 trillion for FY26. 

Speaking about access to capital, Thakur said that "we recognise capital is limited", but confidence in the rules of trade in the fiscal path of large economies are important as bond market is seen pricing those. It is important for markets to see the "durability of partnerships which shows in many of India's free trade agreements" that is built on credibility earned gained through sustained efforts, she said. These efforts include fiscal consistency and discipline--which may be not the easiest path--and reforms and deregulation.

"The hope is that the rules of the game will still play out, countries will recognise that its the durability of partnerships with fair rules around the globe which will help everyone to move forward and boost growth which benefits everyone," Thakur said. 

Thakur highlighted that bond market has emerged as a key source of capital globally. She said that while the global capital landscape is changing, bonds markets, which have always been important, are assuming a larger share in it. "Government bonds alone now amount to 80% of the global GDP, making sovereign bond markets the largest pool of investment debt and the benchmark for the price of capital across the financial system," she said.

"At the same time, governments are borrowing heavily while investors are demanding greater compensation for inflation, fiscal uncertainty and duration risk," she said. "This has pushed-up term premium and long-term yields." Further, global uncertainties and imbalances have led to a rise in bond yields, she said. The US 10-year Treasury yield hit its ‌highest level in 24 years on Thursday due to a massive bonds sell-off.

For emerging markets, this poses a huge challenge because the global bond markets have the opportunity cost of capital and added to this aspect, there are global imbalances. "When trade is organised around security and geo-strategic concerns and over-comparative advantages, goods and capital move less efficiently...surpluses and deficits become sources of friction and the price of capital rises further for everyone around the world."

Artificial intelligence investment is also influencing the demand and potentially, the price of capital, she said. "The AI investment cycle is not limited to software or computing, which requires data centres, semiconductors, reliable, electricity and transmission capacity," Thakur said.

"Investments into (AI) are creating significant additional demand for capital and increasingly being financed through debt. More investments would mean greater demand for savings, while higher borrowing means that financial markets have to absorb a large supply of debt," the economic affairs secretary said. Thus, global bond yields cannot be understood only in terms of monetary policy and fiscal deficit. "The scale of the AI build out is now part of that story," she said. 

Given this context of high cost of capital--especially of the debt market--Thakur said India's "fiscal anchor is moving in tune with global trends towards a decline in debt to GDP ratio".

To woo rating agencies and keep its interest repayment in check, the Centre has adopted a new fiscal consolidation metric--debt-to-GDP ratio--moving away from tracking a particular level of fiscal deficit.

In the Budget for FY25, Finance Minister Nirmala Sitharaman had announced that from FY27, the government would endeavour to "keep the fiscal deficit each year such that the central government debt will be on a declining path as a percentage of GDP". Consequently, in the Budget for FY27, the government estimated the debt-to-GDP ratio for the current fiscal year at 55.6% of GDP, 50 basis points lower than the estimate of 56.1% of GDP for FY26. As part of the rolling target, the government is looking to cut its debt-to-GDP ratio to 50%, plus or minus 100 bps, by March 2031.

Corresponding to the debt-to-GDP ratio for FY27, the government projected the fiscal deficit at 4.3% of GDP. The Union Budget had pegged the fiscal deficit for FY27 at 4.3% of GDP, or INR 16.96 trillion. The fiscal deficit target for FY27 will, however, be 4.5% of GDP, based on the downward revision in India's nominal GDP in the new series with FY23 as the base year.

"These are not India specific choice. Fiscal credibility, price stability and a sound banking system are the foundation for any country that hopes to borrow at reasonable price when capital is scarce and expensive."

In the wake of high cost of debt capital, foreign direct investment is a key source of financing development through non-debt instruments, she said. India recorded an all-time high gross FDI of $97 billion in FY26. In Apr-Jun, gross FDI inflows into India were about $30 billion.

While the growth momentum of foreign direct investment into India has continued in the current financial year ending March, the sectoral pattern of flows show the global capacity is not simply viewing India as a low-cost production base, but as a place to build capacity, she said. "This is a demonstration and show of confidence in the fundamentals that India has demonstrated. Our macroeconomic choices have been deliberate," she said.

According to Thakur, an economy's integrated supply chains, resilience, adaptability and flexibility "now seem to matter equally if not more, but they come at the cost of more capital." The defining challenge, therefore, is not simply how economies respond to change but how effectively they can anticipate and adapt to the changes. "The ability to remain agile, embrace innovation and build resilience will remain critical to sustaining growth and competitiveness," she said.  End

US$1 = INR 96.32

Reported by Priyasmita Dutta and Pratiksha

Edited by Akul Nishant Akhoury

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