India’s Missing Power Is Financial

India today has a large economy, credible military capability, and a growing geopolitical profile. What it does not yet have is a bond market that global can investors use for mitigating risk. That gap explains why India is not treated as a financial destination during periods of stress, despite its ability to safeguard investors’ interests. 

Investors need more avenues where they diversify for safety. And when volatility increases, more capital shifts away from risk and towards safety. This behaviour is consistent across cycles. Funds move into sovereign bonds that trade continuously, allow large positions to be entered and exited quickly, and offer predictable settlement. That is why investments and risk-averse flows concentrate in US Treasuries, German Bunds, Japanese government bonds and, to a lesser extent, UK gilts. 

Indian government bonds rarely feature in these reallocations.

This pattern limits India’s role in the global system at a time when it needs to seize more ground. Military capability influences security outcomes. Economic size affects trade and production. Financial markets determine where capital consolidates when conditions deteriorate. Countries that absorb those flows exercise disproportionate power of influence on their growth rates.

The relevance of this distinction has increased as financial infrastructure has been used more directly as an instrument of foreign policy. Asset freezes, sanctions and exclusions from settlement systems have expanded the range of financial risks that investors consider. As a result, portfolio decisions increasingly account for jurisdictional treatment of assets, market access during stress, and the ability to liquidate positions without administrative barriers.

India compares favourably on institutional grounds, as it operates through democratic processes, adheres to international norms, and has avoided using finance as a coercive tool. It has also corrected past policy actions that damaged investor confidence, including the withdrawal of retrospective taxation. These factors reduce political risk, but they do not by themselves generate market depth.

Depth and Participation
The global bond market finances governments, infrastructure, multinational companies, municipalities and long-term investment. In 2024, global equity issuance was about $500 billion. Non-sovereign bond issuance was close to $13 trillion. Including sovereign borrowing, total bond issuance approached $27 trillion. Bond markets have more heft because investors can transact in size without disrupting prices.

In the United States, Japan and the euro area, around 3% to 4% of outstanding sovereign bonds trade daily. Continuous turnover allows investors to rebalance portfolios during stress without incurring large liquidity costs. In India, daily turnover is typically below 0.5%. Trading activity is concentrated in a limited set of government securities and only over a limited time window, not through the life of such bonds. Corporate and municipal bonds trade infrequently, with limited secondary market pricing.

For international investors, this constrains allocation as yield differentials matter less than exit conditions during stress. Capital that cannot be redeployed quickly is treated as risk capital, not reserve capital. As a result, Indian bonds remain under-represented in global portfolios when volatility rises.

India’s clearing, settlement and trading infrastructure is reliable. Regulatory frameworks are broadly stable. What is missing is a sufficiently large group of market participants willing to hold inventory, quote two-way prices across maturities, and absorb risk through cycles. Without those participants, turnover remains low. Without turnover, global investors remain cautious. And that set of investors also includes central banks. This is also a time ripe for a new entrant to central banks’ investment portfolio.

This has implications beyond finance, as discussions about middle powers stabilising the global order assume the presence of anchors that can absorb shocks. Anchors are not defined by military, GDP and trade rankings alone, but are defined as much by where capital consolidates when others retreat.

India already has the military capacity to deter and the economic scale to matter. India is the only middle power militarily. What it has not yet built at scale is a bond market that international investors treat as a place to park capital during uncertainty.

A deeper bond market would alter this behaviour. It would expand the role of the rupee in global portfolios, reduce reliance on external financial centres, and allow India to convert domestic savings and foreign inflows into sustained financial influence. It would also give global investors an additional market where positions can be adjusted during stress without administrative or liquidity constraints.

India’s rise to date has been driven by growth and strategic positioning, and the next stage depends on whether it chooses to build markets that others use when conditions deteriorate. That choice will determine whether India’s influence appears episodically or whether it becomes embedded in the functioning of the global financial system.