Sanctions impact negative8217;

On the demand side, the government may need to borrow higher amounts than budgeted in the interim budget in order to support infrastructure development, increased defence outlays and more allocation on social sector, taking into the effect the event of official foriegn inflows slowing down. 8220;Demand for the rupee funds from the corporates will increase as there has been an increase in the spreads on foreign loans, making foreign loans more expensive,8221; Crisil said.

On the forex market, it said the impact on the spot rupee rates is likely to be negative, though a sharp depreciation seems unlikely. There is a perception of a fall in the dollarinflows through official sources due to economic sanctions. 8220;However, internationally 50 per cent of total FDI flows to developing countries is to emerging Asian markets. With East Asian economies not in a position to attract much inflows, this money may flow into India,8221; the rating agency said.

Besides, foreign inflows are only 1.5 per cent of the GDP and the share of external trade to GDP is only 10 per cent. In the long term, the effect of an external shock may turn out to be marginal.

About the impact on trade exports and imports, it said as USA is a major destination for exports, exports would be negatively impacted if the sanctions impose a trade embargo. 8220;Overall, the trade deficit in rupees is likely to increase with exports decreasing, and oil imports are price inelastic,8221; it said. Coming to the global depository receipts market, the report says that Indian companies might find it difficult to raise GDRs abroad and those who tap the GDR market would have to price their issues at substantialdiscount to the domestic price due to increased country risk. Euro convertible bonds and external commercial borrowings would become expensive due to an increase in spreads above LIBOR. US pension funds in which the US government has stake are unlikely to invest in funds which invest in Indian GDRs.

Regarding the impact on the domestic primary market, it said blue chip corporates are likely to tap domestic markets for funds leading to crowding out of smaller companies aspiring to raise money in the coming future. The domestic public issues might have to be put on hold due to large funds requirement by corporates wanting to raise funds through equity or debt. About the impact of sanctions on the power projects, the Crisil report said almost 40 per cent of domestic power projects with promoters domiciled in the US would either be abandoned or delayed.