Reserve Bank governor D Subbarao has said that rising fiscal deficit and short-term debt levels are "quite disturbing" but the nation is not facing a repeat of a 1991 balance of payment crisis.
While the 1991 crisis was triggered by high oil prices almost drying foreign reserves and currency crash, large fiscal deficit and current account deficit are lead indicators of stress building up in the system again, he said at a panel discussion on India's economic reforms and development last evening.
With Prime Minister Manmohan Singh listening, Subbarao said fiscal deficit in 1991 was 7 % and it is ruling at 5.9 % in 2012. The current account deficit at 3.6 % is higher than 1991 figure and short-term debt at 23.3 % of GDP in 2012 is much more than 10.2 % in 1991.
"That is quite a disturbing picture. Nevertheless, I would still argue that in 1991, an implosion was imminent. In 2012, an implosion is not imminent," he said.
Stating that the structure of the economy has changed in fundamental ways, he said financial markets are more matured, more diverse and much deeper and have "resilience to absorb shocks".
"Our regulatory systems and out crisis response mechanism are more robust and more sophisticated," he added.
While fiscal deficit was not entirely structural in nature, current account deficit was high because of high oil prices and gold imports, he said adding India's foreign exchange reserves today are much larger than those in 1991.
"I am not saying that we have insulated ourselves from all crises for all times (or that) the economy is in pink of health or on a roll (or that) today's macroeconomic situation is not a cause for concern," he said. "On the contrary, there are serious concerns about macroeconomic management, policy environment and governance".