New Delhi, Oct. 23 -- The global economy seems to be in the midst of a perfect storm. Crude oil prices are rising. Stocks are tumbling. Bond yields are soaring. An adverse El Niño effect is predicted to add to global price pressures by raising commodity prices.

While the Indian economy continues to remain an outperformer, there are signs of trouble. Capital inflows have dried up, putting pressure on the rupee, and pulling down stocks. Inflation is rearing its head once again.

A sharp jump in government spending in the pandemic years drove up public debt levels in India, and despite some belt-tightening since then, public debt levels remain elevated. The turn in the interest rate cycle would raise borrowing costs, squeezing out fisc...