Oil and Natural Gas Corporation Ltd.'s deal to acquire 51 percent stake in refiner and market Hindustan Petroleum Corporation Ltd. will nullify the impact of a cut in market borrowing announced by the government recently, according to former finance minister P. Chidambaram.
"Government cuts borrowing by Rs 30,000 crore, but ONGC will borrow Rs 30,000 crore to pay for HPCL shares," Chidambaram posted on Twitter. "It has the same effect".
In a series of following tweets, Chidamabaram criticised the Bharatiya Janata Party government for “wasteful expenditure” and not utilizing the windfall received from higher taxes on petroleum products appropriately.
Chidambaram added that global oil prices are now near three-year highs and consumers seek relief.
On Saturday, India's largest oil explorer ONGC finalised buying stake in HPCL for a total of Rs 36,915 crore, at a near 14 percent premium over HPCL’s market price. The deal is expected to be completed by the end of this month. The share sale is expected to help the government exceed its record Rs 72,500 crore divestment target.
Earlier in the week, the finance ministry said it would cut back on the planned additional borrowing for the current fiscal year to Rs 20,000 crore from Rs 50,000 crore previously. Bond markets cheered the news with the benchmark 10-year yields on sovereign debt dropping 16 basis points, the sharpest fall in over a year.
However, lower borrowing may still not be enough for the government to rein in its fiscal deficit within its targeted 3.2 percent of the gross domestic product, according to Nomura.