Govt to push ahead with reforms; welcomes inflows

By Rajesh Kumar Singh and Tony Munroe

NEW DELHI (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.

The BSE Sensex 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.