LIC IPO's Dwindling Demand Threatens India's Fiscal Deficit Target, Says Report

LIC IPO: On Saturday, the board of the state-run insurer approved selling 3.5 per cent stake for nearly Rs 21,000 crore which is far lower than the estimated target of Rs 50,000 crore

New Delhi: The decision by the central government to go ahead with the much-awaited initial public offering (IPO) of Life Insurance Corporation of India (LIC) with a reduced target is adding to the risks threatening India’s fiscal deficit goal, according to a report by Bloomberg.     

On Saturday, the board of the LIC approved selling 3.5 per cent stake for nearly Rs 21,000 crore which is far lower than the estimated target of Rs 50,000 crore.

Quoting sources, Bloomberg reported that the anchor investors had been reluctant to commit due to the ongoing war between Russia and Ukraine and simultaneously investors continue to pull money out from India, with foreign funds of more than $16 billion have been withdrawn from Indian stocks this year.

The Centre needs more inflows due to rising crude oil prices as India is one of the largest importers of crude in the world. Costs have risen so much that it’s becoming unsustainable for the government to keep charging taxes on fuel to bridge the gap of Budget deficit.

In an interview in Washington last week, Finance Minister Nirmala Sitharaman, while outlining some of her government’s welfare programmes, said, “I am absolutely grateful to the people of India.”

According to the officials, asking not to be identified, the state-run insurer is seeking a valuation of Rs 6,00,000 crore. The sources have said that the offer could be open in the first week of May. Details around the IPO such as issue price and dates will be known around Wednesday that required regulatory clearances which are still pending, the sources added.

Asset monetisation target

The target of Rs 1.75 lakh crore for the previous financial year by the government had been missed by a wide margin due to delay, including the IPO of LIC.

Now, the goal for the current year is is Rs 65,000 crore. This sum will feed into containing the overall deficit in Budget at 6.4 per cent of the gross domestic product (GDP).

“It will be difficult for the government to meet its deficit targets given that the IPO size is now much smaller,” said Kranthi Bathini, a strategist at Mumbai-based WealthMills Securities. “The war in Ukraine has completely changed the mood of foreign investors who are now skittish to invest. LIC IPO has already been delayed, first due to Covid, then this war. It’s difficult for the government to delay it further.”

According to analysts, the main challenge for the government now will be finding buyers for the LIC IPO as it already a large offering in the current economic scenario.

Though the government has cut down the size of the LIC IPO drastically, it will still be India’s biggest listing, surpassing the IPO of One 97 Communications.