Short-term external debt rises $1 billion

India's short-term external debt has shot up by over $1 billion year-on-year to $8.7 billion till March 2006 to surpass the 1991 high of $8.5 billion, mainly due to a surge in oil import bills.

Short-term debt is considered to be a part of volatile capital flows and accumulation of large size of such debt exposes the economy to external shocks as was witnessed in the South East Asia crisis in 1997.

"Short-term debt has increased during the last two years as trade credits expanded particularly under oil trade," the government said in the Twelfth Status Report on external debt.

Short term debt, which was $8,544 million in 1991, came down to $2,745 million in 2002, and again rose to $8,788 million in 2006 from $7,524 million in 2005.

Generally no rollover of short-term credits beyond six months is allowed and the RBI monitors the stock of short-term debt on an on-going basis.

"Although short-term debt at end-March 2006 was a shade higher than that at end-March 1991 in terms of volume, the ratio of short-term debt to total debt, which measures the sensitivity of short-term debt, recorded a sharp decline from 10.2 per cent in 1991 to 7 per cent in 2006," it said.

India's external debt stood higher at $125.2 billion in March, 2006 from $123.2 billion a year ago. The ratio of short-term debt to GDP has come down to 1.1 per cent in 2006 from 3 per cent in 1991.

Similarly, short-term debt to foreign currency assets ratio has recorded a huge decline from 382.1 per cent in 1991 to 6.1 per cent in 2006. Short-term debt includes all those loans and credits which have the original maturity of one year or less.