India Sticks to Borrowing Plan Amid Ukraine Impact, Sources Say

(Bloomberg) -- India has no plans to borrow more this fiscal year and will keep its budget deficit target despite a potential negative shock to the nation's finances from oil prices and delay in the biggest share sale, according to people familiar with the development.

The government's market borrowings for the fiscal are over and there is no plan to borrow against the auctions that were canceled last month, the people said asking not to be identified as the discussions are private.

India had canceled two previous auctions citing its comfortable cash position as bond yields surged after the government unveiled a record borrowing plan for the next fiscal year. Still, the government last week said it will raise its borrowings through Treasury bills to 1.86 trillion rupees in March, from an earlier aim of 1.26 trillion rupees.

The yield on benchmark 10-year surged more than ten basis points in two weeks as oil prices surging above $100 a barrel, spurred by Russia's invasion of Ukraine, stoked worries about inflation and finances for the net oil-importing nation. India relies on imports to meet about 85% of its oil needs.

Volatile markets after geopolitical concerns are prompting government to review its proposed listing plan for Life Insurance Corp., a move that raises concerns about its impact on India's fiscal deficit, already one of the widest in the world.

The initial share sale of the LIC will likely be deferred to the next year, but extra savings and robust tax collections will make up for it, helping the finance ministry stick to its budget deficit goal of 6.9% of the gross domestic product in the year to March 2022, they said.

READ: India's Mega Insurer IPO Poised to Slip Into Next Fiscal Year

A finance ministry spokesman could not be immediately reached for a comment.

If the LIC IPO doesn't go through by March, the fiscal deficit could rise to 7.1% of GDP, according to Teresa John, an economist with Nirmal Bang Institutional Equities in Mumbai.

As of now, the government's cash position is comfortable, but if crude prices rise further and stay elevated for long, it might warrant a review of the finances, the officials said.