New Delhi, July 16 - The government's plan to sell stakes in state-owned enterprises will strengthen its financial position and help address India's many economic woes, says the economic research arm of consultancy Moody's.

'Divestment is an answer to many of India's existing economic concerns. The government's recent plan to sell stakes in numerous state-owned enterprises is a step in the right direction,' said Sherman Chan, an economist with Moody's Economy.com in a report released Thursday.

'As the authorities are severely cash-strapped with large fiscal deficits and public debt in recent years, proceeds from divestment can help to soothe the current fiscal stress,' she added.

According to Moody's Economy.com, although divestment is not a long-term source of funding, it can provide much-needed relief to the government, which has increased expenditure in a bid to sustain economic momentum.

However, to minimise public concern, Moody's Economy.com suggested that the government maintain majority ownership in firms that are strategically important to the economy.

'Despite only selling small stakes, the firms can still realise some benefits of being listed on the stock market,' it said, adding this would also improve corporate governance.