India Finance Minister Flags Unsustainably High Bond Yields Amid Fiscal Concerns

Rising government bond yields have raised concerns globally about debt sustainability and fiscal health, as higher yields increase borrowing costs for governments. In India, Finance Minister Nirmala Sitharaman highlighted that rising bond yields have made government borrowing increasingly expensive despite low interest rates, describing the situation as "unaffordable" though not yet a cause for concern. The 10-year benchmark bond yield in India rose significantly in August, partly due to the government's GST rationalization announcement and concerns over fiscal slippage from tax cuts, which have heightened market anxiety and impacted the rupee's volatility against the dollar. Sitharaman reassured that India will meet its fiscal deficit target of 4.4% of GDP without reducing infrastructure spending and confirmed the government's commitment to its capital expenditure plan. The rise in bond yields, compounded by the Reserve Bank of India's hawkish stance and supply-demand mismatches, has erased gains from previous rate cuts and intensified apprehensions about fiscal sustainability. This dynamic reflects a broader pattern seen in major economies where higher government borrowing costs exert pressure on wider economic conditions, including mortgage rates and currency stability.