RBI governor Subbarao calls economic view 'disturbing'

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India's deficits and short-term debt levels are "disturbing," but it is not facing a repeat of a 1991 balance of payments crisis, Reserve Bank of India chief Duvvuri Subbarao said on Saturday.

Dependent on imported oil which it then subsidises, India is exposed to external shocks such as high crude prices and has seen its fiscal and current deficits blow out in recent months, triggering some economists to warn of a looming crisis.

In 1991, India came close to defaulting on foreign debt payments when the first Gulf War drove oil prices up, leading to a depletion of foreign reserves and a currency crash.

Subbarao said the economy was far more resilient now and that the probability of an "implosion" was low.

India's current account deficit for last year is estimated to be higher than in 1991, and short term debt makes up twice as much of total debt as it did in 1991, the RBI governor said.

"That is quite a disturbing picture," he said. "Nevertheless, I would still argue that in 1991 an implosion was imminent, in 2012, an implosion in not imminent."

"There are serious concerns about the macroeconomy, about our policy environment, and about our governance," Subbarao said at a panel discussion attended by Prime Minister Manmohan Singh.

"We should prove to the world that the current downturn is just a short-term phenomenon and that the long-term growth drivers will come back into play," Subbarao said.

Singh remained mostly quiet during the discussion, in which influential economist Raghuram G Rajan called on the government to quickly reduce subsidies on domestic fuel to restore confidence in the economy.

Singh's weak coalition government has vowed to cut the subsidy bill to bring the fiscal deficit down from 5.9 percent last year, but needs to win support from populist allies and opposition parties already fuming at high inflation.

The prime minister accepted there were economic difficulties, but said they could be resolved with determination.