Due to the sudden developments in 1998-99, a temporary disruption in capital flows, especially debt flows, was BIS Review 89/1998  -6-  anticipated. Instead of dipping into currency reserves, which might affect sentiment adversely, or cutting the current account deficit through drastic import cuts, which would affect real economic activity, the alternative was to enhance debt flows at the least possible cost.
There was a need to offset the adverse negative market sentiment created in the international capital markets due to the downgrading of India’s sovereign rating to non-investment grade. This could be done by demonstrably raising debt resources at a cost lower than that any organised financial intermediary was prepared to provide in the context of the rating downgrade.