Finance ministry asks cash-rich PSUs to pay higher dividends

PC At Work

THE finance ministry is asking for higher dividend payments from state-owned public sector undertakings (PSUs) in a bid to check the fiscal deficit at 4.8 percent of GDP in the current financial year since the target of disinvestment is far from being achieved. In fact, the issues of dividend payment and the investment of surplus funds are likely to figure prominently at a meeting of heads of major PSUs in sectors such as steel, coal, mining and power which was convened by finance minister P Chidambaram in New Delhi on Thursday. According to one rough estimate, the cash-rich PSUs have over...

Rs 2.50 lakh crore investible surpluses with them. A closer look into the financial health of the major PSUs will reveal that Coal India had cash balance of Rs 58,202 crore in 2011-12, while NMDC had Rs 20,264 crore, NTPC (Rs 16,146 crore) and SAIL (Rs 6,415 crore).

Oil India Ltd (OIL) registered a turnover of Rs 9,947.57 crore during 2012-13 against Rs 9,863.23 crore 2011-2012. The company paid Rs 518.65 crore as interim dividend for the financial year 2012-13 to the government. NTPC paid a total dividend of Rs 4,741.16 crore — 57.5 percent of its paid-up capital—for the financial year 2012-13.
Recently, the finance minister said at an IMF Committee meeting in Washington that the government was committed for fiscal consolidation and had drawn red lines for the fiscal and current account deficits. "We shall not allow the red lines to be breached under any circumstances and we shall remain within the red lines. We are prepared to take difficult decisions in this regard, should the need arise," the minister said. The government had last year told PSUs that surplus funds that were not invested in projects would be appropriated by the exchequer. Prime Minister Manmohan Singh, too, had earlier asked PSUs to invest their surpluses or give special dividends.

Such high dividend payments will help the government control its growing fiscal deficit by making up part of the shortfall from disinvestment and lower receipts in other heads of accounts due to slowing economic growth.

With hardly five months left in current fiscal, the government has so far been able to mop up only Rs 1,400 crore against a disinvestment target of Rs 40,000 crore. India's GDP growth slowed to five percent in the year ended March from an average of eight percent over the past decade. The World Bank has also sharply lowered its forecast for India's economic growth to 4.7 percent from 6.1 percent for the current fiscal year. Last week, the International Monetary Fund (IMF) had also projected an average growth rate of about 3.75 percent in market prices for India.

In fact, if a cash-rich PSU has surplus funds and it doesn’t have any immediate plan to invest, the ministry will ask the PSU to pay a higher dividend.

“If the PSUs do not deploy the investible surpluses in their own growth and expansion, that money should not lie idle and it must be paid back to the government by way of special dividend," heavy industries and public enterprises minister Praful Patel had earlier said.

He told reporters after Prime Minister Manmohan Singh's recent meeting with heads of 25 PSUs, including the cash-rich ONGC, Coal India, BHEL, NTPC, SAIL and NMDC.

Patel also said that a committee of secretaries headed by cabinet secretary will be set up to look into the issue of how to invest surplus funds lying with the rich government companies.

Finance minister P Chidambaram was "very categorical” and fully endorsed that-either “you (PSUs) use that money for your growth and development in a time-bound manner or give back to the government by way of special dividend."