Reserve Bank of India (RBI) on Thursday said dependence on external commercial borrowings (ECBs) and short-term borrowings to finance current account deficit (CAD) remains a key concern.
"Private sector external debt has become large and some prudence may be necessary on external commercial borrowing (ECBs) and short-term trade credit," it said in its macroeconomic and monetary development report, which sets the tone for the monetary policy statement.
By the end of December 2012, short-term debt on a residual maturity basis rose to 44 per cent of total debt and 56 per cent of the foreign exchange reserves.
"CAD, even at this large level, could be fully financed by capital inflows during 2012-13 but the volatility in such flows remains a risk," RBI said. "It is necessary to lower external sector risks by lowering current account deficit to its sustainable level and not become complacent about external in flows," it said.