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Delays in divestment of Bharat Petroleum Corporation's (BPCL) stake by the Government will impact India’s fiscal deficit and risk its slippage beyond 3.5 per cent.
The Government this week announced that would divest its 53 per cent stake in the public sector (PSU) refining major. There is widespread belief in the stock markets that the Government stake in BPCL, worth more than Rs 50,000 crore, would be bought over by a consortium of players involving Saudi’s largest oil producer Aramco or another major global oil company but potential delay could hit India’s currency too, analysts say.
All eyes are not on conclusion of Aramco’s $25 billion IPO post, which the company is like to give a definitive idea on its investments in the Indian oil and gas sector. The difference between total revenue and total expenditure of the Government is termed as fiscal deficit. Slippage in fiscal deficit means widening Government loss. “Any potential delay in the BPCL deal beyond FY (financial year) 2020 increases the risk of fiscal slippage beyond 3.5 per cent,” said Teresa John, economist, Nirmal Bang, a Mumbai based institutional brokerage house. “In our view, staying within the escape clause of 3.5 per cent will require the Government to exceed the divestment target of Rs 1050 bn (Rs 1 lakh crore) with some marginal expenditure cuts. Although we are optimistic about the Government’s divestment push, we have retained our fiscal deficit estimate at 3.9 per cent given uncertainty around the timeline for sale of some of these assets,” Nirmal Bang said in a morning note to clients. The brokerage house further said that India’s Rupee will continue to trade with a depreciation bias and their average rupee forecast for FY20 is 72.1. “However, the risk of fiscal slippage is largely priced in by the bond and currency markets. Therefore, any positive news flow, say for example BPCL being sold to a strategic foreign investor which results in significant foreign inflows may be marginally positive for the INR in the short term. In the event of slippage in divestment targets, the Rupee may trade above 72. A positive divestment outcome with significant foreign inflows may pull the Rupee back to around 70-70.5,” the note said.
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