The Indian industry may face the hitch of rising short-term trade credit. The short term trade debt in the country that is to be settled by March 2009 amount to Rs 3.69 lakh crore and out this Rs 2 lakh crore seem to be in the trouble zone.

Short-term trade credit is the buyers and suppliers credit which is used for imports and foreign currency component of export credit. Trade credit is loan granted by a supplier to a customer to finance the customer's purchase of goods or services from the supplier. Such credits are categorized for imports or exports.

The short-term trade debt has been steadily rising from Rs 1.19 lakh crore in fiscal year 07 to Rs 3.69 lakh for 09. This figure looks a little risky and Citigroup economist Rohini Malkani alerts that, "Given the global crisis, there is risk that overseas banks would run out of lines on Indian banks. Or, there is a likelihood of the letters of credit not getting renewed."

The short-term debt that is increasing in the current situation is both difficult and costly to refinance as the credit markets are in a bad shape. Although the economists are relaxed about the country's debt to GDP ratio that stands at 18% but there are some apprehensions about the debt that is due for March 2009. In fact this problem has been predicted by the policy officials who have relaxed capital account norms and also declared dollar swap lines for domestic banks.

Sharekhan, an official at a brokerage said, "On November 15, the Reserve Bank extended the export credit refinance limit to 50% from 15%. This would provide additional liquidity support of about Rs 22,000 crore to banks."

However experts feel that there is still a need to solve the trade credit issues as refinancing as well the turn over has come to an end on the international front.