India plans to raise $2.7b by selling stakes

The proposal involves a share sale depending on the market sentiment

India is considering a plan to raise as much as Rs200 billion (Dh9.81 billion, $2.7 billion) by selling stake in the world’s largest coal producer, and a bank to fund a stimulus programme aimed at boosting the virus-battered economy, officials said.

The proposal involves a share sale depending on the market sentiment, said the officials. In case of Coal India, if valuations are not attractive, the company will buy back shares from the government, they said.

The coronavirus pandemic has derailed Prime Minister Narendra Modi’s budget goals. Rapid spread of the disease prompted the government to boost spending on welfare programmes and revive the economy struggling from the month long stay-at-home order to check the spread of Covid-19. Modi in February had planned to raise as much as Rs2.1 trillion selling state assets in a bid to keep the budget deficit at 3.5 per cent of gross domestic product.

Infections surge

Despite the economic cost, the spread of infection continues unabated with India surpassing Russia to become the third worst-hit country with more than 740,000 Covid-19 cases, putting further pressure on finances.

An unprecedented freeze in international travel and lower

oil prices has upset government plans to sell flag carrier Air India and nation’s secondlargest state refiner Bharat Petroleum Corp Ltd. India’s asset sale goal for the year ending March 31 was more than double the previous year’s target.

Life Insurance Corp of India bought 51 per cent of IDBI Bank last year, leaving the government with about 47 per cent. The government holds more than 66 per cent in Coal India. It had previously sold a 10 per cent stake in January 2015, mopping up Rs225.5 billion.

Economist expect the nation’s fiscal deficit this year to hit 7 per cent of GDP — a level last seen in 1994. The International Monetary Fund sees the country’s public debt rising to 85.7 per cent of GDP next year from around 70 per cent now.

Rating downgrade

A possible credit rating downgrade is another risk for India, which is heading for its first economic contraction in more than four decades this year. The credit score of Asia’s third-largest economy is only a step away from junk at Fitch Ratings and Moody’s Investors Service, both of which have kept the sovereign on negative watch citing deteriorating fiscal strength.