By Manoj Kumar
NEW DELHI (Reuters) - India moved a step closer to selling a stake in state-run oil company ONGC on Monday, keeping up Prime Minister Narendra Modi's momentum on economic reform after bringing prices of diesel and natural gas closer in line with the market.
A barn-storming performance in two state elections last week capped several days of action on the economic front and has given Modi more room to cut through a thicket of regulations and state controls he says holds back Asia's third-largest economy.
The administration's top privatization official met bankers on Monday in the financial capital, Mumbai, to discuss the sale of a stake of 5 percent in Oil and Natural Gas Corp (ONGC).
The finance ministry hopes to raise up to $3 billion from the sale, almost a quarter of its target for asset sales for this financial year.
"It is the right time for disinvestment in ONGC," a top finance ministry official with direct knowledge of the matter told reporters in a briefing.
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"We are following it very fast," said the official, when asked whether the share sale, first approved in September, could happen next month.
Citigroup and HSBC are among five banks chosen to manage the planned sale of a stake in ONGC, sources told Reuters in August.
The finance ministry official, who declined to be identified because of the sensitivity of the topic, also told reporters the government wanted to pass a bill in parliament's next session to free up foreign investment in the insurance industry.
The measure will need backing from across political parties, because the government does not have a majority in the Rajya Sabha.
Saturday's decision to free diesel pricing of government intervention makes ONGC more attractive to investors because it will reduce the hefty discount on crude sales that the country's top oil producer must give to fuel retailers.
ONGC, the second-largest listed firm in India by market value, also stands to benefit from a decision on Saturday to raise the price for natural gas by a third to $5.61 per mmBtu.
Shares in ONGC gained 5.6 percent on Monday. The government has a stake of 68.94 percent in the company, which has stakes in oil and gas fields across the globe.
In his maiden budget in July, Finance Minister Arun Jaitley set a target of 584.25 billion rupees to be raised by the sale of shares in state-run companies and minority stakes in private companies. Another major planned sale is of a 10 percent stake in giant Coal India.
The income is key to meeting a challenging fiscal deficit goal of 4.1 percent of gross domestic product for the year ending March 31. Tax revenue has been less than budgeted this year, and government finances have been stung by a large bill for tax rebates.
Modi was elected in May on promises of creating jobs and bringing the bounce back to the Indian economy, but investors and economists were disappointed by his first budget and a lack of early structural economic reforms.
In the last week he has gone some way to quell those concerns, putting in a reform-minded team at the finance ministry that includes prominent economist Arvind Subramanian to help formulate the budget and policy.
He also kicked off an overhaul of creaky labour rules, cutting the power of labour inspectors and slashing the red tape for small companies that makes India one of the toughest places in the world to do business.
(Reporting by Manoj Kumar; Editing by Frank Jack Daniel and Clarence Fernandez)