The EU could pressurise Indian manufacturers to offer the best possible prices as the union would have a large export market for manufactured goods, especially the textiles segment, said a report by the Mumbai-based Khandwala Securities. This could see the already strained manufacturers further lose out in the future.

India's reliance on dollars for trade purposes would decline considerably beyond year 2000 in favour of the euro. Besides, transaction costs for Indian companies would also diminish considerably, the report said.

As EU is India's largest trading partner, the country could tilt in favour of the euro, the report said.

The reactions from EU member nations to the nuclear tests are an indicator of India's close trade relationship with these nations. The ties would be further strengthened if the US-imposed sanctions on India are not removed by then.

In such asscenario, a considerable shift in the domestic foreign currency reserves from the dollar towards the euro could be seen beyond year 2000.

Capital goods are the key import item from Europe and exceed imports from the US as well, showing EU's strength in the sector.

The move on the part of the Reserve Bank of India to shift a part of its reserves from the dollar to the euro may see a depreciation in the dollar vis-a-vis rupee. This may mean a slowdown in selling pressures from the foreign institutional investors arising out of concerns about the exchange rate. No other major direct impact is foreseen on the Indian capital markets once the euro arrives.

The State Bank of India's recent Resurgent India Bonds issue, when viewed in this context, could mean that the high cost of funding as is being assumed now may not be high. The reason: If the euro gains stature of a competitor currency, the dollar may depreciate, thereby reducing the redemption costs of the issue.

Although in the medium term, the eurowill take away some of the dollar's importance as the most preferred settlement currency, it would not be in position to replace the same entirely.

The key revenue generating sectors from Europe are manufactured goods, readymade garments & textile yarn, made ups, agriculture & allied products and gems & jewellery.