IN A sense PSUs may truly turn a Santa for the government which is trying hard to control fiscal deficit as CRISIL Research, India's largest independent research house, has estimated that the government can reduce its fiscal deficit by as much as Rs 20,000 crore this fiscal by using cash reserves of 20 such public sector units. CRISIL Research's analysis shows that these PSUs...are comfortably placed to pay special dividends of Rs 27,000 crore over and above their normal dividend payouts, without any impact whatsoever on their capex plans, CRISIL said in a statement.
The 20 PSUs, according to CRISIL, are Bharat Electronics, BHEL, BPCL, Coal India, Container Corporation of India, Engineers India, GAIL, MMTC, MOIL, Nalco, Neyveli Lignite Corporation, NHPC, NMDC, NTPC, Oil India, ONGC, Power Grid Corporation, Shipping Corporation of India, SJVN and Steel Authority of India Ltd (SAIL).
It may be noted that the Central Government has already exhausted 84 percent of its fiscal deficit target in the first seven months (April-October) of the current fiscal and tax receipts are below expectation, while money realised through disinvestment is just around Rs 3,000 crore against the target of Rs 40,000 crore. All these are making it bit difficult for the government to keep the overall deficit under check.
“Apart from the expected shortfall in tax revenue collections, the Union government may not be able to meet its disinvestment target, which could result in it falling short of the budgeted fiscal deficit. In such a scenario, the cash reserves of PSUs provide an alternative source of income. However, a lot will depend on whether the government is able to convince the companies to part with the surplus cash as a special dividend,” said Mukesh Agarwal, president, CRISIL Research.
The agency noted that these PSUs were having total cash holding of Rs 1.70 lakh crore at the end of 2012-13. By the end of this fiscal, the pre-dividend corpus with these companies is expected to be around Rs 1.60 lakh crore of which 40 percent or Rs 64,000 crore could be distributed as dividend without affecting their growth plans.
Last year, these PSUs paid Rs 37,000 crore as dividends to the government. This means companies could pay additional special dividend of Rs 27,000 crore for the current fiscal. Based on the shareholding, the government could get Rs 20,000 crore out of the additional pay out, the agency noted.
Sandeep Sabharwal, senior director of the agency said that the government will have to reduce its spending to meet its fiscal deficit target. But this may not augur well for an economy that has slowed down and fresh spending cuts can also create growth hurdles. Therefore the government could persuade companies with large cash reserves to announce special dividends or a buyback programme, he added. The Rs 20,000-crore additional income would approximate 20 basis points of the fiscal deficit, which can help the government reach closer to its stated fiscal deficit target of 4.8 percent. It may be noted that finance minister P Chidambaram had already asked the cash-rich PSUs to give additional dividends to the government.
The finance ministry has asked all profit-making oil PSUs to pay a minimum 30 per cent dividend in the current financial year. Currently, all profit-making central public sector enterprises (CPSEs) are required to declare a minimum dividend on equity of 20 percent or a minimum dividend payout of 20 percent of post-tax profit, whichever is higher. However, for the 14 PSUs in the oil sector, including ONGC, IOC and GAIL, the ministry has sought a 30 percent dividend.
The ministry believes dividend from CPSEs is a return on investment made by the government and it should be commensurate with profits. The ministry said in the case of PSUs with large disposable profits or healthy cash reserves, a higher or special dividend may also be considered. ONGC, GAIL and Oil India have declared 30 percent dividend for the past few years.