As policymakers and business leaders gathered at the World Economic Forum in Davos, one message from India cut through the usual optimism: the biggest threat to global stability may not come from emerging markets, but from the advanced economies themselves.
Union Minister for Railways, Information & Broadcasting, and Electronics & Information Technology, Ashwini Vaishnaw, said the Indian government is increasingly concerned about what he described as a “huge mountain of debt” in developed nations and the danger of a disorderly unravelling.
His remarks came against the backdrop of a sharp spike in long-term Japanese bond yields, a move that sent ripples across global financial markets, reported Business Standard.
“What’s really a matter of concern in the government’s mind is the huge global debt in the rich world and how that will unravel. We saw a run on bonds in Japan on Tuesday. If it happens on a large scale, what will be the impact on our country is a matter of concern,” Vaishnaw said during a session titled ‘Can India Become the Third-Largest Economy in the World?’.
Japan’s Bond Jolt and Why It Matters to India
The immediate trigger for Vaishnaw’s warning was a sharp move in Japan’s sovereign debt market. Japan’s 40-year bond yield crossed 4 per cent, hitting its highest level since the instrument was introduced in 2007.
More strikingly, it marked the first time in over three decades that any maturity of Japanese government debt breached the 4 per cent threshold.
Investors were rattled by plans for tax cuts and large pre-election spending announced by Prime Minister Sanae Takaichi, with no clear funding roadmap.
For India, the implications are not academic. When yields rise sharply in traditionally “safe” markets such as Japan, global investors often rebalance portfolios away from riskier assets. That typically means reduced appetite for bonds and equities in emerging markets and a higher probability of foreign portfolio investor outflows during volatile periods.
How Global Debt Can Spill Into Emerging Markets
Higher yields in advanced economies increase the relative attractiveness of developed-market assets, draining capital from countries like India. This can weaken local currencies, tighten domestic financial conditions, and make borrowing more expensive for both governments and companies.
Vaishnaw’s warning reflects a broader concern in New Delhi: that turbulence in rich economies could derail growth momentum in emerging markets, even if domestic fundamentals remain strong.
India’s Growth Ambition: 6-8 Per Cent and Beyond
Despite these global risks, Vaishnaw struck an optimistic note about India’s medium-term prospects. He said India could sustain 6-8 per cent growth over the next five years and emerge as the world’s third-largest economy, driven by a reform strategy anchored on four pillars: public investment, inclusive growth, manufacturing and innovation, and simplification.
“All this, combined with the technology base we have put in place, allows us to clearly say India will grow at 6-8 per cent real growth, with moderate inflation of 2-4 per cent, and nominal growth of 10-13 per cent, with a 95 per cent confidence interval over the next five years,” he said.
Per Capita Incomes, Not Rankings, Are the Real Test
Harvard professor Gita Gopinath offered a sobering counterpoint. Becoming the world’s third-largest economy, she argued, is not India’s hardest task. “The real challenge for India is raising per capita incomes and maintaining the pace of reforms to achieve the Viksit Bharat goal by 2047,” she said, adding that India could reach the third-largest position by 2028 or earlier.
Gopinath flagged land acquisition hurdles, unclear land titles, and the absence of judicial reforms as structural obstacles that continue to slow investment and project execution.
Pollution: A Bigger Threat Than Tariffs
Perhaps Gopinath’s strongest warning concerned pollution. She said its economic and social costs far outweigh the impact of tariffs imposed on India so far. Citing a World Bank study, she noted that around 1.7 million people die every year in India due to pollution, accounting for 18 per cent of all deaths.
“That’s 18 per cent of deaths in India. From an international investor’s perspective, if you’re thinking of coming in and setting up operations in India but have to live in an environment that affects your health, it becomes a deterrent. Addressing this on a war footing is critical. This has to be a top mission for India,” she said.
Competition, Standards and India’s Own Path
Business leaders at the panel also highlighted longer-term challenges. Sunil Bharti Mittal, chairman of Bharti Enterprises, said rising global competition means India cannot replicate China’s export-led path.
“The US was a massive market for China, which it used over 20-30 years to build factories, move into deeptech, and generate enormous wealth. That opportunity does not exist for India. We will have to chart our own path. Thankfully, we have a large domestic market,” he said.
Meanwhile, Juvencio Maeztu, CEO and president of Ingka Group, urged India to align more closely with global standards. “We welcome the new legislation on quality control orders. Raising quality standards will help India export globally. Implementation, however, needs to support supply as well,” he said.
