IDBI Bank deal to help govt meet fiscal goals, attract foreign investment amid global turbulence: Economist

New Delhi, Oct 17 (IANS) The proposed disinvestment of IDBI Bank will help the government meet its fiscal targets, attract foreign investment and boost private sector participation in banking, CareEdge Ratings Chief Economist Rajani Sinha said on Saturday.

In an interview with IANS, Sinha said the transaction, involving a consideration of Rs 52,878 crore, assumes significance amid global economic uncertainty and concerns over the government’s expenditure on subsidies and revenue implications of excise duty cuts on petrol and diesel.

She described the IDBI Bank disinvestment as a landmark reform and noted that the government had been pursuing the transaction for several years.

The deal would increase private sector participation in banking, potentially improve efficiency and send a positive signal to investors about the Indian economy, she said.

“The IDBI Bank disinvestment is a landmark reform,” Sinha said.

She added that the transaction would also help the government exceed its disinvestment target for the current fiscal year if completed within the year.

The government has set a disinvestment and asset monetisation target of Rs 80,000 crore for the fiscal year. It had already received around Rs 55,000 crore under this head, and the IDBI Bank transaction would provide a significant boost to receipts, she told IANS.

The additional proceeds would support fiscal management at a time when concerns have emerged over the subsidy burden, particularly fertiliser subsidies, as well as the impact of excise duty cuts on petrol and diesel on government revenues.

However, Sinha noted that government finances had also received support from healthy tax collections with both direct and indirect tax revenues performing well during the fiscal year so far.

The transaction is also significant from the foreign investment perspective as it would bring a substantial inflow of foreign capital into the country and could improve investor sentiment, she said.

On foreign direct investment (FDI), Sinha said India’s gross FDI inflows had remained healthy, with the country receiving around USD 90 billion in the previous fiscal year.

While high repatriation of profits and FDI outflows had weighed on net inflows, she said there had been an improvement in the current fiscal year.

For the full fiscal year, Sinha has expected that net FDI inflows to reach a comfortable level of up to 20 billion.

Looking ahead, she said the IDBI Bank transaction could serve as an important signal of the government’s willingness to reduce its involvement in sectors where private enterprises could take the lead.

The government had struggled to meet its disinvestment targets in previous years despite setting what Sinha described as reasonable goals. The IDBI Bank deal could mark a significant step towards improving that record, she said.

Greater private sector participation could also improve the efficiency and overall health of the banking sector, whose fundamentals were already in good shape, she added.

–IANS

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