Current account deficit touched 2.4 per cent of GDP because of depreciation of rupee against dollar to a level never seen before. On account of this, the government announced five measures. We feel most of them are oriented in such a way that will either enhance borrowing or flows in the short term.

For manufacturing, entities will be allowed to avail external commercial borrowings (ECBs) of up to $50 million with minimum maturity of one year, down from three years earlier.

As for masala bonds, these are primarily rupee-denominated specialised debt instruments that can be issued in the offshore markets to raise capital. These measures are expected to have a positive impact to the tune of $8-10 billion. Usually, masala bonds are attracted by foreign investors when there is stability in currency and also when rupee dominated assets are cheap. Most of the measures aim at increasing short-term external debt; or in effect worsen the risk profile of companies by increasing un-hedged exposure could actually be considered negative.

This could lead to further worsening of vulnerability ratios and global investors might actually take this negatively. Such measure are suited when the sentiment is positive towards emerging markets and, in general, when it is relatively easy for emerging market corporate to raise money abroad. Currently we feel emerging markets are yet to bottom out but in a quarter or so they can bottom out.

Regarding borrowings from ECB or foreign portfolio, it will depend more on whether Indian corporates are willing too and are speedily adapting to borrowing at cheaper rate an additional capital during this tenure. It should be noted that this can be looked as reversal of reforms too by some viewers from foreign institutions. So, in overall conclusion in the short-term it will provide some boost but for long-term the impact will not be significant and will not reverse appreciation effect.