India is vulnerable to high public debt - RBI

By Saikat Chatterjee

MUMBAI (Reuters) - India's economy is vulnerable to high public debt and global developments but there is no visible immediate threat to financial stability, the governor of The Reserve Bank of India (RBI) said on Thursday.

"A major area of vulnerability for us is the high consolidated public-debt to GDP ratio of over 70 percent ... (and) consolidated fiscal deficit," Yaga Venugopal Reddy said in Hyderabad.

He said the Indian economy remained prey primarily to global developments.

"I also agree... that susceptibility arises essentially from global developments and hence I will treat this as another advice to us to be vigilant in managing the process of integration with the global economy," he said.

The speech was posted on the central bank's Web site, www.rbi.org.in.

While central banks had provided liquidity support to cope with a global credit crunch, the scope for financial contagion to other economies could not be ruled out and it was not clear how it would unfold in 2008, he said.

"There is one uncertainty in these circumstances ... extraordinarily uncertain times are ahead of us," he said.

"While there is no visible immediate threat to financial stability in our country, at this juncture, we recognise the need for continued but heightened vigilance," he added.