India's external debt rose by 30.4 per cent to touch $221.21 billion in fiscal 2007-08 as high interest rates in the country drove corporates to raise funds from abroad.

Rise in short-term debt, particularly due to increasing oil imports, and dollar depreciation during the year contributed to the surge in the external debt, a status report on India's External Debt released by the finance ministry stated.

While funds raised by India Inc abroad, called External Commercial Borrowings, contributed 28 per cent of the total debt, short-term debt constituted 20 per cent of the total debt.

Weakening of dollar against major currencies contributed almost 20 per cent of the total amount India owes to the world.

ECB rose by 49 per cent to touch $62.02 billion as on March 31, 2008 from $41.66 billion a year ago.

"The increase in ECBs can be attributed to the larger borrowings from international capital markets by Indian corporates encouraged by the persistence interest rate wedge between domestic and international interest rates," the report said.

Interest rates have been rising in India as the Reserve Bank has been tightening money supply to control the runaway inflation, forcing banks to up their lending rates, including those to corporates.

Short term debt rose by 68 per cent to touch $44.31 billion mainly due to larger trade credits owing to higher imports during the year, particularly oil imports.

However, the total debt rose less by 19.6 per cent in rupee terms due to the appreciation of Indian currency against the dollar.

The report said India's external debt has remained within manageable limits owing to the cautious external debt policy of the government.

The main elements of this policy include monitoring of short-term debt, rationalisation of interest rates on NRI deposits, limiting ECBs and raising sovereign loans on concessional terms with longer maturities and encouraging non-debt creating flows.

Besides ECBs and short-term debts, other component of India's external debt include NRI deposits which contributed 19.8 per cent, multilateral funding (17.8 per cent), bilateral funding (8.9), trade credits (4.6) and rupee debt (0.9).

The report said all major external debt indicators are still in the comfortable zone. Citing example, it said forex reserve cover of external debt continued to be at high level, up from 117.4 per cent during 2006-07 to 140 per cent during 2007-08. Debt-service ratio was marginally higher by 0.6 per cent to 5.4 per cent last fiscal, but the report termed it a low figure.

Other indicators, such as the ratio of external debt to GDP, which measures the burden of external debt, increased from 17.8 per cent during 2006-07 to 18.8 per cent during 2007-08; the ratio of short-term debt to forex reserves rose from 13.2 per cent to 14.3 per cent and the ratio of short-term debt to total external debt too rose from 15.5 per cent to 20 per cent over the same period.

A cross-country comparison based on the data given in the World Bank's Global Development Finance, 2008 showed that India's position among the top 10 debtor countries of the developing world was fifth in 2006.

In terms of ratio of external debt to gross national income, India's position was second after China. Similarly, its debt service ratio was the second best after that of China.