Stability in the political situation, unambiguous policy signals as well as clear understanding of the implications of the economic sanctions is necessary to boost market sentiments, I-Sec said in its discussion paper on `Balance of Payments: Trends and Prospects'.

"A market upturn under this (hopeful) scenario could be as dramatic as the current downtrend," it observed. Though the fundamental situation appears reasonably comfortable, one must keep in mind that market sentiments may differ from the medium term macro-fundamentals, I-Sec noted.

Referring to commerce ministry's 20 per cent export growth target, I-Sec said depreciation of the rupee would not immediately result in a strong export growth.

Though depreciation of currencies of competing Asiancountries is one of the factors affecting export competitiveness, the issues behind export growth slowdown are more deep-rooted. The malaise affecting the growth include infrastructure (shortage of roads and ports), regulatory (complicated duty drawback mechanism, export quotas), high inflation and capital costs, I-Sec said.

Efforts are needed to tackle the malaise rather than to devalue the currency, I-Sec felt. I-Sec estimated trade deficit in 1997-98 to be $16.5 billion, based on its analysis of Reserve Bank of India's trade figures.

Noting that the main source of external assistance to India have been International Board for Reconstruction and Development (IBRD), International Development Assistance (IDA) and that official assistance directly from the United States has been negligible, I-Sec said that the threat due to sanctions by the US is more due to opposition to assistance from multilateral agencies and withdrawals of proposed loans by Japan and European countries.

The amount of total flowsfrom these sources for 1997-98 have been estimated at about $3.5 billion (Rs 12,500 crore). The recent resumption of approvals by World Bank agencies for social sector projects is a positive signal, I-Sec said.

The paper said the government has unveiled plans to attract funds from NRIs and the target is to raise $3 billion from NRIs through SBI Resurgent india Bond, details of which would be announced by State Bank of India on Monday. "Total borrowings this year would depend on the success of this scheme," it said.

I-Sec said that its analysis of balance ofpayment estimates and forecasts shows clearly that the threat of sanctions is not very significant.