The Reserve Bank of India (RBI) has flagged a major risk to the Indian financial system. This comes in the form of external risk. And the reason for this is the rising quantum of external debt particularly short term debt. As per the RBI, India's external debt has gone up to US$ 390 bn which is about 21% of our GDP. Of this 44.2% is short term in nature which needs to be repaid over the next one year. The recent decline in Rupee has made the situation even worse because the amount of rupees required to pay back the debt goes up due to the currency depreciation. This debt burden makes India exceedingly vulnerable to any external sector shocks.
Source: The Mint