By Rajesh Kumar Singh and Tony Munroe
NEW DELHI, Nov 4 (Reuters) - India will push ahead with financial sector reforms, which will not destablise growth, and can absorb a welcome rise in foreign investment flows, a top policy adviser said on Wednesday.
Indian stocks rallied 3.3 percent amid a global rally, a day after the finance minister said fiscal stimulus measures would remain in place to ensure economic recovery.
Montek Singh Ahluwalia, deputy chairman of the Planning Commission and a close aide to the prime minister, also said food price inflation was a concern but it should moderate by the end of this year.
Addressing the annual economic editors' conference, Ahluwalia said a rise in foreign investment flows into Asia's third-largest economy were good, but authorities would keep a vigil on short-term debt flows.
'I think we can absorb those foreign investment flows. Obviously we will remain watchful on flows of short-term debt and so on, but a revival of foreign investment flows is very welcome,' he said.
Between April and September, the first half of the 2009/10 fiscal year, foreign direct investment was in excess of $15 billion and portfolio investment were almost the same, Trade Minister Anand Sharma said at the same event.
With Western economies still crawling out of recession and interest rates at or near historic lows, funds have been flooding into faster-growing Asian markets, helping to drive up stock and property prices and prompting central banks, including India's, to take steps to curb a surge in real estate prices.
The influx of foreign funds is also pushing up the rupee . The Reserve Bank of India has said there was a risk that if it raised interest rates ahead of other central banks, it could attract more inflows and complicate policymaking.
Foreign investors have bought more than $14 billion of local equities in 2009, after selling $13 billion in 2008, helping send stocks 65 percent higher.
Brazil, faced with a similar surge in risk-hungry capital, last month imposed a 2 percent tax on foreign investments in local stocks and bonds.
GROWTH TARGET
Ahluwalia said the country would miss a target of 9 percent annual growth between 2007/08 and 2011/12 as the global slump and the weakest monsoon in four decades hit output. The planning commission plans to reset the target.
'Obviously, if for two years you have lower growth there will be revision (in the growth target),' Ahluwalia told reporters.
India's economy expanded by 6.7 percent in 2008/09, after growing at 9 percent or more in the previous three years. The plan panel expects it to grow 6.3 percent this year and accelerate to 8 percent next year.
After the Congress party-led coalition government was re-elected in April/May elections with a larger majority, investors expected faster progress on stalled financial reforms.
However, the weakest monsoon since 1972 and then flooding in some parts of the country shifted the government's focus to drought relief and taming food inflation.
Last week, Prime Minister Manmohan Singh said there was a need to push reforms to help the economy get back to a higher growth trajectory of 9-10 percent.
The global financial crisis has dampened appetite for financial liberalisations, especially as India's limits on foreign banks and its active regulation of the financial sector were seen as sheltering it from the worst of the downturn.
Ahluwalia said the reforms that were being talked about would not destabilise the economy.
'Therefore it would be a great mistake to stop financial sector reforms,' he said.
A finance ministry official said on Tuesday the government would reintroduce six bills in parliament, including one to lower the government's holding in dominant lender State Bank of India to 51 percent and another to raise the foreign stake limit in insurers to 49 percent from the present 26 percent.
The other bills that could be taken up in the November session include one to open up the pension sector for private and foreign firms.
Further liberalisation will not, however, come soon to the country's retail sector, which limits foreign holdings in single-brand retailers to 51 percent. Foreign players are not allowed into multi-brand retail.
'As far as multi-brand is concerned we have said no. Time has not come for us to have a relook,' Trade Minister Sharma said.
(Additional reporting by Matthias Williams and Rajkumar Ray; Editing by John Mair)
((rajkumar.ray@thomsonreuters.com; +91-11-4178-1006; Reuters Messaging: rajkumar.ray.reuters.com@reuters.net)) Keywords: INDIA ECONOMY/ (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
NEW DELHI, Nov 4 (Reuters) - India will push ahead with financial sector reforms, which will not destablise growth, and can absorb a welcome rise in foreign investment flows, a top policy adviser said on Wednesday.
Indian stocks rallied 3.3 percent amid a global rally, a day after the finance minister said fiscal stimulus measures would remain in place to ensure economic recovery.
Montek Singh Ahluwalia, deputy chairman of the Planning Commission and a close aide to the prime minister, also said food price inflation was a concern but it should moderate by the end of this year.
Addressing the annual economic editors' conference, Ahluwalia said a rise in foreign investment flows into Asia's third-largest economy were good, but authorities would keep a vigil on short-term debt flows.
'I think we can absorb those foreign investment flows. Obviously we will remain watchful on flows of short-term debt and so on, but a revival of foreign investment flows is very welcome,' he said.
Between April and September, the first half of the 2009/10 fiscal year, foreign direct investment was in excess of $15 billion and portfolio investment were almost the same, Trade Minister Anand Sharma said at the same event.
With Western economies still crawling out of recession and interest rates at or near historic lows, funds have been flooding into faster-growing Asian markets, helping to drive up stock and property prices and prompting central banks, including India's, to take steps to curb a surge in real estate prices.
The influx of foreign funds is also pushing up the rupee . The Reserve Bank of India has said there was a risk that if it raised interest rates ahead of other central banks, it could attract more inflows and complicate policymaking.
Foreign investors have bought more than $14 billion of local equities in 2009, after selling $13 billion in 2008, helping send stocks 65 percent higher.
Brazil, faced with a similar surge in risk-hungry capital, last month imposed a 2 percent tax on foreign investments in local stocks and bonds.
GROWTH TARGET
Ahluwalia said the country would miss a target of 9 percent annual growth between 2007/08 and 2011/12 as the global slump and the weakest monsoon in four decades hit output. The planning commission plans to reset the target.
'Obviously, if for two years you have lower growth there will be revision (in the growth target),' Ahluwalia told reporters.
India's economy expanded by 6.7 percent in 2008/09, after growing at 9 percent or more in the previous three years. The plan panel expects it to grow 6.3 percent this year and accelerate to 8 percent next year.
After the Congress party-led coalition government was re-elected in April/May elections with a larger majority, investors expected faster progress on stalled financial reforms.
However, the weakest monsoon since 1972 and then flooding in some parts of the country shifted the government's focus to drought relief and taming food inflation.
Last week, Prime Minister Manmohan Singh said there was a need to push reforms to help the economy get back to a higher growth trajectory of 9-10 percent.
The global financial crisis has dampened appetite for financial liberalisations, especially as India's limits on foreign banks and its active regulation of the financial sector were seen as sheltering it from the worst of the downturn.
Ahluwalia said the reforms that were being talked about would not destabilise the economy.
'Therefore it would be a great mistake to stop financial sector reforms,' he said.
A finance ministry official said on Tuesday the government would reintroduce six bills in parliament, including one to lower the government's holding in dominant lender State Bank of India to 51 percent and another to raise the foreign stake limit in insurers to 49 percent from the present 26 percent.
The other bills that could be taken up in the November session include one to open up the pension sector for private and foreign firms.
Further liberalisation will not, however, come soon to the country's retail sector, which limits foreign holdings in single-brand retailers to 51 percent. Foreign players are not allowed into multi-brand retail.
'As far as multi-brand is concerned we have said no. Time has not come for us to have a relook,' Trade Minister Sharma said.
(Additional reporting by Matthias Williams and Rajkumar Ray; Editing by John Mair)
((rajkumar.ray@thomsonreuters.com; +91-11-4178-1006; Reuters Messaging: rajkumar.ray.reuters.com@reuters.net)) Keywords: INDIA ECONOMY/ (If you have a query or comment on this story, send an email to news.feedback.asia@thomsonreuters.com) COPYRIGHT Copyright Thomson Reuters 2009. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.