New Delhi, Feb. 16 -- India's financial landscape is witnessing an anomaly: it is currently cheaper for an individual to finance a home than it is for the sovereign government to fund its own debt. Home loans from State Bank of India are priced at about 7.25%, while the 20-year government security (G-sec) yield is around 7.38%. This is startling because government borrowing is considered risk-free, and sets the benchmark for all other interest rates.

It is even more unusual that the 10-year G-sec yield has barely moved over the past year, despite a 1.25% cut in the policy repo rate. In previous rate-easing cycles, the 10-year benchmark yield tended to fall significantly, especially towards the end of the cycle. But this time, G-sec yield...