India’s markets are stuck in an unusual bind. Even as the Reserve Bank of India cuts rates and injects massive liquidity, bond yields remain stubbornly high and equity markets refuse to rally. What’s going wrong?
In this audio, Debashis Basu explains how a surge in state government borrowing is undermining the RBI’s easy-money policy. While the central bank is pumping liquidity through bond purchases and swaps, states are flooding the debt market with their own bond issuances—absorbing that liquidity and pushing yields higher. Weak state revenues, rigid spending commitments, and rising competitive populism through “freebie” schemes have worsened the fiscal strain.
The video breaks down why strong headline GDP growth is failing to translate into healthier public finances, how rising state debt poses hidden risks to bond and equity markets, and why investors are becoming cautious despite supportive monetary policy. A clear-eyed look at the growing fiscal tug of war between the Centre, the states, and the RBI—and why it matters for markets.
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