3 min readSep 5, 2026 06:35 AM IST First published on: Sep 5, 2026 at 06:35 AM ISTOfficial GDP growth estimates for April-June — plus more recent data on car, two-wheeler and tractor sales or GST collections — show India weathering the West Asia war-induced energy supply shock quite well. But there’s another storm brewing — from soaring global long-term interest rates. Ten-year government bond yields crossed 3 per cent this week in Japan for the first time since 1996, while they hit 4.8 per cent for the US and 5.2 per cent for the UK. Even higher are 30-year bond yields for the three countries, at 4.1, 5.3 and 5.9 per cent, respectively. Given that these are virtually risk-free, being issued by governments that have never defaulted on their debts, the implications are huge. If investors are getting an assured 4.8 per cent dollar-denominated return on 10-year US treasuries, why would they put money in India?Not surprisingly, Indian banks had to offer 6-6.5 per cent interest on FCNR(B) deposits that mobilised $127.2 billion between June 8 and August 21. They were enabled to do so by the Reserve Bank of India (RBI) bearing the hedging cost against currency fluctuation through a special dollar-rupee swap facility. The banks have, in effect, transferred the risk of rupee depreciation to the RBI, allowing them to pay such high interest rates — that too, in foreign currency — on these deposits. Either way, there is a cost involved, as much as the fact that foreign money no longer comes cheap. Going by the direction of global bond yields, it may only turn more expensive. Unless the Indian economy’s growth prospects, which also translate into returns from its equity markets, are compelling enough, attracting serious long-term capital from foreign investors isn’t going to be easy. That challenge will be even more in today’s world of elevated bond yields.AdvertisementThe current situation demands building economic resilience through a greater focus on macroeconomic stability and boosting exports. In a rising interest-rate environment, governments cannot afford to run high fiscal deficits that would further crowd out private-sector and other productive borrowings. Nor can these be allowed to spill over into current account deficits that are, again, difficult to finance when global capital flows turn volatile. An RBI special forex swap window, like the one for FCNR(B) deposits, can only be a one-time affair providing a much-needed reprieve to India’s external sector. These cannot substitute more durable interventions directed at fiscal consolidation, export promotion through increased global market access and elimination of duties on imported raw materials and components, and ensuring policy stability and predictability for foreign investors.