Modi government’s itch to offload ₹40,000 crore Hindustan Zinc stake hints at a bigger deficit than initially anticipated

Modi government’s itch to offload ₹40,000 crore Hindustan Zinc stake hints at a bigger deficit than initially anticipated
After export curbs and easier imports, Modi government could now be looking at fast-tracking its disinvestment plansBCCL
  • The Modi government seems to be hurrying to achieve its disinvestment target for FY23.
  • As inflation runs rampant and the Indian government’s growth prospects take a hit, managing the fiscal deficit could be a prime concern for the government now.
  • Hindustan Zinc, a former government company now owned by Anil Agarwal’s Vedanta, is one of the leading companies in zinc, lead, silver and cadmium mining.
The Modi government seems to be sprinting towards its ₹65,000 crore disinvestment target for the financial year 2022-23, with a new report claiming that it has approved the offloading its ₹40,000 crore stake in Hindustan Zinc, one of the leading zinc, lead, silver and cadmium mining companies in India.

According to a report by ET Now, the government has approved the sale of its 29.5% stake in Hindustan Zinc, which is worth nearly ₹40,000 crore. The stake sale was challenged in the Supreme Court last year, but the court’s verdict cleared the path for the government to pare its holdings.

The shares of Hindustan Zinc hit an intraday high of 7%, and as of 3:00 p.m. today (May 25), the stock was up 5%.

Modi government’s itch to offload ₹40,000 crore Hindustan Zinc stake hints at a bigger deficit than initially anticipated
Hindustan Zinc share price in 2022BSE / Business Insider India / Flourish

However, given the bearish market sentiment, it might be prudent to delay the stake sale. Since the beginning of March, Hindustan Zinc has already lost nearly 13% of its value.

A sign of things to come?


Interestingly enough, the government has set a disinvestment target of ₹65,000 crore for FY23. Of this, it has already realized ₹20,560 crore with the LIC IPO – this is despite cutting down the stake sale from 5% to 3.5%.

The LIC stake sale leaves the government with a balance of a little less than ₹40,000 crore – all of which could be realized by offloading its stake in Hindustan Zinc – with more than 10 months left in FY23.

The government’s urgency to pare its holdings could be a sign of a bigger problem, which is fiscal deficit.

Fiscal deficit refers to a shortfall in the government’s income compared to its spending. The government could be looking at a much higher disinvestment in the current financial year to offset a portion of deficit to keep it within manageable limits.

The ET Now report adds that the government could also be looking at paring its stake in consumer goods and tobacco giant ITC. The government currently holds a 7.91% stake in the company, which is worth ₹26,601 crore as of today.

RBI’s hawkish stance behind government’s change of mind?

With inflation running rampant, India’s central bank finally shifted its stance from dovish to hawkish by hiking interest rates – meaning, the Reserve Bank of India thinks inflation is a more immediate concern than growth.

A hawkish policy – which is what Das and RBI are following now – suggests that higher interest rates help reduce inflation. A dovish policy, on the other hand, favours expansionary monetary policies with low interest rates to boost demand.

In his interview, the RBI governor, Shaktikanta Das underlined that he expects the government to be in a position to manage the current account deficit ‘comfortably’.

It’s not clear if Das factored in the government disinvesting to keep the deficit under control, but it is something that should become clearer with time.


India’s central bank confirms another rate hike is coming in June, but promises to soften the blow after the May shocker

The big boss of India's largest consumer company is worried about stagflation and unprecedented inflation

Biscuits, ghee and hair oil to get cheaper after government duty cut — but after three months