Nilesh Shah Praises India for Fiscal and Monetary Discipline as Yield Gap with US Shrinks to 1.89%
Significant Reduction in India-US 10-Year Government Bond Yield Spread
The yield spread between India’s 10-year government bonds and those of the United States has seen a significant contraction—from a notable 6.35% in 2014 to a mere 1.89% today. This reduction highlights the fiscal and monetary prudence of the Indian government.
India’s Remarkable Economic Journey
Over the last decade, India has undergone a noteworthy transformation, with the yield spread between its 10-year government bonds and US Treasuries compressing drastically. This drop from 6.35% in 2014 to just 1.89% today indicates a growing confidence among investors in India’s economic resilience and ability to tackle inflation and maintain fiscal stability.
Back in 2014, the significant yield gap was a reflection of global concerns regarding India’s economic fundamentals and institutional reliability. However, today’s narrower spread indicates a shift in perception. Presently, the yield on India’s 10-year government bonds stands approximately at 6.28%, which is intriguingly lower than the previous gap that separated it from US yields in 2014.
Praise from Financial Experts
Nilesh Shah, Managing Director at Kotak Mahindra Asset Management, shared a post on X (formerly Twitter) emphasizing this crucial progression. He noted, “What an incredible journey. The difference between 10-year India and US Gilt Yield was 6.35% in 2014. Today it has narrowed down to 1.89%. The current 10-year India Gilt yield is now below the gap of 635 basis points we saw back then. Clearly, India has been re-rated due to its effective fiscal and monetary management.”
Strengthened Fiscal Position
This significant convergence can be attributed to India’s improved fiscal environment, which has strengthened markedly compared to previous years. The government has actively worked to lower the fiscal deficit, manage spending effectively, and enforce structural reforms, such as the Goods and Services Tax (GST) and the Insolvency and Bankruptcy Code (IBC). Notably, the fiscal deficit was curtailed from the highs witnessed during the pandemic, with a target of 4.8% of GDP for FY25. In the revised fiscal estimates revealed in February, the government projected a fiscal deficit of Rs 15,69,527 crore, equivalent to 4.8% of GDP. Over time, tax revenues, particularly from GST, have seen strong growth, establishing a more reliable revenue framework.
Prudent Monetary Policies
On the monetary side, the Reserve Bank of India (RBI) has adopted a strategy focused on both inflation targeting and economic growth. The central bank has successfully anchored inflation expectations despite facing global supply chain disruptions and escalating energy prices. Recent figures show India’s retail inflation, as indicated by the consumer price index (CPI), dipped to a 69-month low of 3.16% in April, marking the sixth consecutive month of decrease in headline inflation, which has remained under 4% for three months in a row. The RBI also projected FY26 headline inflation at 3.70% last week.
Moreover, during its June meeting, the RBI implemented a strategic 50 basis points cut in the repo rate to 5.5%, prioritizing inflation control and financial stability. Additionally, the RBI Monetary Policy Committee (MPC) reduced the Cash Reserve Ratio (CRR) by 100 basis points to 3%, with this adjustment set to be executed in four phases starting from the fortnight commencing September 6, 2025. This measure is anticipated to inject approximately Rs 2.5 trillion in liquidity into the financial system.
Maintaining Momentum
Looking forward, it is essential for the government to uphold this credibility through unwavering commitment to fiscal discipline and reform initiatives.
