India's external debt has risen by $2 billion to $125.2 billion as on March 30, year-on-year, as Non-Resident Indian long-term deposits escalated and short-term debt surged due to increase in oil import bill.
However, the rise in NRI deposits and short-term debt was partially offset by decline in commercial borrowings by $1.4 billion to $25.56 billion and bilateral loans by $1.14 billion to $15.78 billion at the end of 2005-06, the report said.
"The increase (in external debt) was essentially due to rise in NRI deposits partly because of flow-back of funds from redemptions of IMDs (India Millennium Deposits) and surge in short-term debt owing to larger trade credits buoyed up by higher import demand," Finance Minister P Chidambaram wrote in his foreword to the report.
The report said short-term debt has increased during the last two years to $8.78 billion from $4.43 billion in 2003-04 as trade credits expanded particularly under oil trade.
The short-term credit was shade higher than the earlier peak of $8.54 billion in 1991.
Large accumulation of short-term debt, considered as a part of volatile capital flows, exposes the economy to external shocks as was witnessed by the currency meltdown in East Asia in 1997.
However, in India short-term debt is maintained well within a permissible limit, the report said.