By Tony Munroe and Rajesh Kumar Singh

India will push ahead with financial sector reforms as they will not destablise growth and Asia's third-largest economy can absorb a welcome rise in foreign investment flows, a top policy adviser said on Wednesday.

Montek Singh Ahluwalia, the deputy chairman of 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 was good for the economy, 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 USD 15 billion and portfolio investment were almost the same, Trade Minister Anand Sharma said separately.

Growth Target

Ahluwalia said country would miss a target of 9% 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% in 2008/09, after growing at 9% or more in the previous three years. The plan panel expect it to grow 6.3% this year and accelerate to 8% 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%.

Ahluwalia said the reforms that were being talked about would not destabilise the economy at this moment.

"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 State Bank of India to 51% and another for raising foreign investment limit in insurers to 49% from the present 26%.

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.a

(Additional reporting by Matthias Williams and Rajkumar Ray)

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