India Sells Off State-Owned Enterprises to Plug Budget Gap and Avoid Deficit
Heavy fiscal challenges in recent years have prompted the government of Indian Prime Minister Narendra Modi to take aggressive steps to raise funds. The government is seeking to collect 314 billion rupees (approximately Rp59 trillion, assuming an exchange rate of Rp17,900 per US dollar) by reducing its stake in the Life Insurance Corporation of India (LIC).
The Indian government is offering up to 6.5% of LIC shares to institutional and retail investors at a price of 382 rupees per share. This price reflects a discount of about 11% compared to the previous closing share price. The discount is considered reasonable given volatile market conditions and increasingly fierce competition in the life insurance industry. This step is expected to pave the way for the sale of other state assets.
This divestment is part of the government’s target to collect 800 billion rupees in the fiscal year ending March 2027. The funds are believed to help strengthen the country’s balance sheet, which is under pressure due to war, particularly the conflict between the United States and Iran in the Middle East. The government’s share sales will not stop here. India will also sell stakes in coal mining company Coal India, worth approximately US$27 billion, and hydropower producer NHPC.
Total funds collected so far are estimated to reach 526 billion rupees, or about two-thirds of the annual target. Last year, Goldman Sachs was appointed to manage the sale of shares in four state-owned banks, including UCO Bank and Punjab and Sind Bank. The government is also potentially reviving the sale process for Indian mid-sized bank IDBI Bank, which is backed by LIC. The bank reportedly received new bids last month from Canadian investment firm Fairfax Financial Holdings and UAE-based bank Emirates NBD. Pressure on the fiscal condition is expected to force the Indian government to act more aggressively and creatively in seeking new funding sources.
On the other hand, state revenues have weakened after the government cut several indirect tax rates. This raises concerns that the government will exceed the fiscal deficit target of 4.3% of gross domestic product (GDP) this year. Meanwhile, ANZ analysts warned that rising fertiliser subsidies and debt repayment costs could widen the fiscal deficit by up to 0.3% of GDP. This pressure is expected to push the government to accelerate its state asset divestment programme.