India suffered humiliations in terms of balance of payments crises in 1991 but since then it has weathered all crises, which have hit the world economies despite the fact that subsequent periods have seen even larger current account and fiscal deficits. It is in this context that an analysis of fiscal and debt problems of India is timely and assumes importance. The paper delves upon fiscal exuberance and debt management practices in India, the budgetary allocations, changing structure of the deficit and debt, and the sustainability. The external and internal balances highlight its dependence on external borrowing and the vulnerability of the economy and the important role played by the foreign exchange accumulation in avoiding crises. India’s deficit and debt dynamics is characterised as adverse on following grounds: (1) while deficit is increasing, the share of capital formation out of budget is decreasing. Therefore, income multiplier to government expenditure may not be enough to cover the debt liability in long run. (2) Government debt dynamics is unstable with large variability and therefore, it lacks credible predictability of future path. (3) Exposure of the economy to non‐government external debt is increasing and therefore, there is a case to conduct analysis about the economic returns to such borrowings in terms of long term sustainability. More flows in capital account is sought for than that required by current account, which is essential to meet its fiscal deficits. There are indications that acceleration in fiscal deficit causes current account deficit, which would make the debt dynamics more unstable. With debt to GDP ratio being very high and unstable, India faces potential risk of sovereign default. Increasing globalization has increased the external vulnerability as short term component of total external debt is sharply increasing. The external debt being driven by the private sector, the corporate governance issues have become more critical. The relevance of high foreign exchange reserves has increased further for sustaining growth and avoiding crises situations.