The End of Cheap Money: Is India Insulated or Just Late to Feel It?

Cheap Money Is Over and India's Head Start May Not Last

The tension is this. For fifteen years, cheap global capital financed both rich-country deficits and emerging-market growth. Now governments in the US, France and Japan are paying multi-decade-high interest and private AI investment is competing for the same savings.

India's borrowing costs have risen far less. Does that mean India can carry on borrowing as before or should it tighten now, before the global squeeze arrives?

What has changed Three forces, as the Indian Express editorial sets out, are pushing global borrowing costs up:

• Rich-country deficits. Ageing populations, larger welfare commitments, rising defence spending and resistance to tax increases keep deficits high. US public debt is over $40 trillion and its 2026 defence budget hit a record $1 trillion. Advanced economies paid over $3.3 trillion in interest on traded government bonds last year.
• Commodity inflation. War and weather shocks are pushing up prices, so central banks are raising rates and signalling more.
• The AI investment boom. Four hyperscalers spent $410 billion on capital investment in 2025, projected to rise to $725 billion in 2026 and over $1.1 trillion in 2027. Much of this is debt-funded, so tech companies are now competing with governments for investors' money. Even the safest bonds feel this. Fewer large buyers are absorbing US debt: China's holdings of US Treasuries fell to an 18-year low of $618 billion in July 2026, from $1.32 trillion in 2013.

The case that India is insulated India's 10-year yield rose only about 0.7 percentage points to 7.21%, half the increase in rich countries.

Most Indian government debt is held by domestic institutions such as banks and insurers, funded by domestic savings. On this view, India can keep public investment strong while others retrench.

The case that the squeeze is coming But the gap between Indian and US yields has narrowed to under 2 percentage points.

Since India joined global bond indices in 2024, foreign investors compare that gap directly. A thinner cushion makes Indian bonds less attractive. Rising global rates also raise the cost of overseas corporate borrowing and put pressure on the rupee. Insulation in yields is not insulation in capital flows.

TAN's position TAN's position is that India should treat its relative calm as time to prepare, not as permission to borrow more.

The government should keep to its fiscal consolidation path and its debt-reduction target. Above all it should avoid crowding out private investment, which will itself face higher global costs. Public capital spending should continue, but chosen for quality and funded within that path rather than through rising deficits.

What would change this view is clear evidence of a sharp slowdown in private investment and demand. In that case, temporary public support would be justified. Without it, restraint is the cheaper insurance.

For the exam, the insight is this: when capital becomes scarce globally, fiscal space becomes a competitive advantage. Countries that protect it can borrow when they need to; those that spend it early cannot.