Archive · 5 Sep 2026
India Weathers Energy Shock as Global Bond Storm Builds
India’s economy handled a recent rise in energy prices better than expected.
This is shown by economic growth estimates and recent sales and tax data.
However, another problem may be developing.
Governments in Japan, the United States and the United Kingdom are offering higher interest on long-term bonds.
These bonds are considered very safe.
Because investors can earn more from safe foreign bonds, they may be less interested in investing in India.
Indian banks therefore offered high interest rates to attract foreign-currency deposits.
The Reserve Bank of India helped banks manage the risk, but bringing in foreign money may become even more expensive.
India’s April-June GDP estimates and recent sales and GST data suggest the economy absorbed the West Asia war-related energy shock relatively well.
Global long-term government bond yields have risen sharply, with 10-year yields reaching 3% in Japan, 4.8% in the United States and 5.2% in the United Kingdom.
Thirty-year bond yields are even higher, reaching 4.1% in Japan, 5.3% in the United States and 5.9% in the United Kingdom.
Indian banks offered 6-6.5% interest on foreign-currency deposits that mobilised $127.2 billion between June 8 and August 21.
Higher global yields could make foreign capital more expensive and harder for India to attract unless its growth and equity returns remain compelling.
- Who
- India, Indian banks, the Reserve Bank of India, and global investors are involved.
- What
- India has absorbed an energy supply shock, but rising long-term global interest rates could make foreign capital more expensive to attract.
- When
- The assessment uses April-June GDP estimates, data through August 21, and bond yields reported as of this week.
- Where
- The economic effects involve India and global bond markets, particularly Japan, the United States and the United Kingdom.
- Why
- Higher yields on relatively risk-free foreign government bonds can reduce investors’ incentive to place money in India.
- India’s recent performance
- GDP estimates and recent car, two-wheeler, tractor sales and GST collections indicate resilience to the energy shock.
- 10-year yield: Japan
- More than 3%, the first time since 1996.
- 10-year yield: United States
- 4.8%.
- 10-year yield: United Kingdom
- 5.2%.
- Foreign-currency deposits
- $127.2 billion mobilised between June 8 and August 21.
- Deposit interest offered
- Indian banks offered 6-6.5% on FCNR(B) deposits.
- RBI support
- The Reserve Bank of India provided a special dollar-rupee swap facility covering banks’ hedging costs.