India flags 'huge mountain of debt' in developed nations as matter of concern

Gita Gopinath, professor at Harvard University, said becoming the third-largest economy was not India’s main challenge, as the country could reach that position by 2028 or earlier.

“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.

The “huge mountain of debt” in developed economies and the risk of a possible unravelling is a matter of concern for India, Union Minister for Railways, Information & Broadcasting, Electronics & Information Technology Ashwini Vaishnaw said on Wednesday, pointing to the recent spike in Japanese bond yields.

“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 while participating in a session titled ‘Can India Become the Third-Largest Economy in the World?’ at the World Economic Forum in Davos.

Japan’s 40-year bond yield went past 4 per cent, hitting a fresh high since its debut in 2007 and marking the first time in more than three decades that any maturity of the country’s sovereign debt has crossed that level.

Planned tax cuts and large pre-election spending by Prime Minister Sanae Takaichi, without credible financing, rattled investors.

Higher yields in safe markets such as Japan make government bonds and equities in emerging markets like India less attractive, triggering foreign portfolio investor outflows, especially during periods of market volatility.

Vaishnaw said India could grow at 6-8 per cent over the next five years to become the world’s third-largest economy, backed by what he described as well-designed government reforms built 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 added.

India's real challenge

Gita Gopinath, professor at Harvard University, said becoming the third-largest economy was not India’s main challenge, as the country could reach that position by 2028 or earlier.

“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.

Gopinath flagged difficulties in land acquisition, unclear land titles, and the absence of judicial reforms as key hurdles.

She also said pollution posed a far greater challenge than the impact of tariffs imposed on India so far.

Quoting a World Bank study, Gopinath said around 1.7 million lives are lost every year in India due to pollution.

“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.

Where India and the US differ

Sunil Bharti Mittal, chairman of Bharti Enterprises, said rising global competition was emerging as a challenge to India’s growth.

“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 to support its economy.

"That opportunity does not exist for India. We will have to chart our own path.

"Thankfully, we have a large domestic market,” he said.

What India needs at the moment

Juvencio Maeztu, chief executive officer and president of Ingka Group, said India needed greater harmonisation 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.