India should push reforms, cut deficit

By Tony Munroe and Suvashree Dey Choudhury

MUMBAI, (Reuters) - India, whose protected financial system helped insulate it from the worst of the global downturn, should not be complacent in its push for reforms in the sector, the top country executive at Bank of America-Merrill Lynch said.

"One thing that does worry me is that the conservative nature of Indian regulation. That may persist longer than it would otherwise have done because of the financial crisis," Kevan Watts, India head of Bank of America Merrill Lynch, told the Reuters India Investment Summit on Monday.

The rousing re-election of the Congress party-led government in May, which freed it from dependence on communist allies, lifted hopes of an acceleration in long-delayed financial reforms that would expand participation by overseas players and increase opportunities for domestic and global investors in India.

But the global financial meltdown dampened Indian appetite for financial liberalisation, especially as limits on foreign banks and active regulation of the financial sector were seen as sheltering it from the depths of the downturn.

Srinivasan Varadarajan, executive director at private sector lender Axis Bank, said what's more important is for India to reduce its fiscal deficit, which is on track to reach 6.8 percent of GDP this year, a 16-year high, and improve its infrastructure.

He said India's external position is otherwise strong, with ample reserves and little short-dated debt.

"Whether things happen in terms of opening up some sectors which are specific for foreign investors or not -- it'll happen at some point of time," Varadarajan told the Summit.

"But whether it happens now or it happens 12 months, 24 months from now -- I don't think broadly the complexion of the market or the growth story as far as India is concerned is going to change dramatically," he said.