Financial services firm Goldman Sachs on Tuesday said the new United Progressive Alliance government is unlikely to pursue 'big-bang' reforms, but piecemeal changes in policies may take place, including hiking of FDI cap in insurance and divestment in public sector units.
". . . structural reforms will be of a piecemeal nature and happen gradually, without being 'big bang' or radical in nature," Goldman Sachs said in a report.
The financial services firm said there is less likelihood of further opening up of the banking sector to foreign banks, FDI in retail, changes to labour laws, outright privatisation and any major subsidy or expenditure reduction.
"The low likelihood of allowing more entry to foreign banks will shield the domestic banking sector from greater competition," the report said.
However, it added that insurance reforms is also likely to take place with an increase in the FDI stake to 49 per cent from 26 per cent in the sector and a big push in divestment to finance the fiscal deficit in the short-term is likely to take place.
Goldman Sachs said there is high possibility of stake sale by the government in public sector units especially to retail investors, while retaining its holding above 51 per cent.
"(The divestment will) garner funds for financing the fiscal deficit, including foreign funds; reduce government market borrowings and lower bond yields," it said.
Goldman Sachs also said the government is likely to pursue pension reforms by setting up an independent regulator.
This, along with, insurance reforms will channelise domestic savings for long-term investment.
The financial services firm also said that there is a possibility of removal of regulatory hurdles for investment in roads and ports, implementation of the Goods and Services Tax from April 1, 2010.
Also, opening up of mining to greater exploitation, higher education reforms and changes to boost governance and efficiency in bureaucracy to some extent may be ushered in by the new government.
