Rs 4.51-lakh-cr govt borrowing won’t stress out rates

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: India will push key financial sector reforms, including raising foreign investment limit in insurance companies and give equal voting rights to foreigners in private sector banks, finance secretary Ashok Chawla said on Friday. “It’s all in the pipeline,” Chawla said, referring to bills in Parliament to allow up to 49% foreign holding in insurance firms, compared with 26% now, and other reforms to speed up stake sales in state companies.

The comment lifted financial shares and helped power the main stock index BSE Sensex more than 3% higher. Silence on the reforms in last Monday’s Budget was one factor behind a stocks slide last week. Voting rights of foreigners in banks are limited to 10%, irrespective of their holding. If the pending bill in Parliament is approved, their voting rights would be equivalent to their holding.

Chawla also said there was scope for commercial banks to lower their lending rates, but it was difficult to predict whether the central bank would revise its monetary stance. The Reserve Bank of India, which has slashed its main lending rate by 425 basis points since last October to help revive slowing growth, is scheduled to review policy on July 28 and analysts expect key rates will be kept steady.

Chawla said the government’s plan to borrow a record Rs 4.51 lakh crore in 2009-10 would not put upward pressure on rates. “Our expectation is that the borrowing programme is not going to put pressure on bond yields, at

best it could be marginal,” he told reporters.

On Thursday, India revised upwards its borrowing target by

nearly a quarter to Rs 2.99 lakh crore for April-September, leaving Rs 1.52 lakh crore for the second half of 2009-10.

“The demand from the private corporate sector will pick up, but there also we don’t see that much of an impact on the interest rates,” Chawla said, referring to the situation in the later part of the fiscal year.

Borrowings surged this year as the government stepped up spending and widened the fiscal deficit to 6.8% of gross domestic product, the highest in 16 years. “I don’t expect it to go beyond 7%,” Chawla said, adding the deficit would start coming down after the government starts unwinding some of the stimulus spending from next year.