In today's Asia Chart Alert, Nomura expressed serious concern for India's rising short-term debt, even with a fully funded current account deficit, as it has increased India's external vulnerability
Short-term debt and long-term debt due in the next one year are on the rise. As per the Reserve Bank of India (RBI) figures, this has increased to $172 billion in March 2013, up from $147 billion a year ago.
Excluding NRI deposits, short-term residual maturity debt amounts to a massive 42% of total forex reserves. While this is not as alarming as the early nineties, Nomura notes that it is indeed a steep rise from a low of 16% in 2004.
While debt capital inflows help finance the current account deficit, they could also worsen the balance of payments situation. According to Nomura, with global risks on the rise, difficulty in rolling over debt could put pressure on net capital inflows, thus leaving the currency vulnerable.
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