The Hindu Business Line : Govt to once again dip into PSU reserves to cover revenue shortfall

WITH revenues, particularly from indirect taxes, not showing the desired buoyancy, the Government has decided to dip into the resources of cash-rich public sector undertakings to keep its fiscal and revenue deficits within the budgeted targets.

All profit-making PSUs have accordingly been asked to "consider" issuing bonus shares to the Government, which would tantamount to capitalising their reserves. The mop-up of resources through this route would be over and above the Rs 4,000 crore that the Government has budgeted to mobilise from divesting its equity in PSUs during 2004-05.

A Finance Ministry official, however, did not divulge the extent of monies proposed to be raised nor did he specify the PSUs that would be asked to issue bonus shares. The Government has in the past resorted to the bonus share route in order to meet its revenue shortfalls, particularly from disinvestment.

For instance, in 2000-01, state-owned oil companies were made to issue bonus shares worth Rs 449 crore, which included a 1:1 bonus declared by the Indian Oil Corporation (IOC). In 1995-96, oil PSUs similarly ended up issuing bonus shares to the Government to the tune of Rs 1,035 crore.

More recently, IOC issued a 1:2 bonus during 2003-04, thereby raising its equity base from Rs 778.67 crore to Rs 1,168.01 crore.

Besides issuing bonus shares, all profit-making PSUs have been asked to declare "a minimum dividend on equity of 20 per cent or a minimum dividend payout of 20 per cent on post-tax profits, whichever is higher." In the case of oil, petroleum, chemical and other infrastructure sectors, the minimum payout has been stipulated at 30 per cent of post-tax profits. All profit-making joint venture companies, too, would be required to make "concerted efforts" to pay a dividend of 20 per cent on Government equity holding.

For 2004-05, the Government has budgeted receipts of Rs 12,978.57 crore as dividends from PSUs, against Rs 10,841.18 crore during the previous year (revised estimates). In fact, for 2003-04, the Government had initially budgeted only Rs 7,136.43 crore as dividends from PSUs, but ended up raising an additional Rs 3,705 crore in the revised estimates. In the current fiscal, too, it looks as though the Government will realise a sum higher than the budget estimate of Rs 12,978.57 crore.

"We are having to take recourse to these additional revenue mobilisation measures, as our indirect tax collections have not kept pace with the budget targets. Many of the new levies proposed in the Budget, such as the increase in service tax rate from 8 to 10 per cent and the Securities Transaction Tax regime, would take effect only after September, which means the revenues would start flowing much later," the official said.

Observers say that the move to dip into the reserves of profit-making PSUs is significant, considering that the Government's efforts to mobilise resources through outright privatisation is facing political roadblocks, particularly from the Left. Of the Rs 4,000 crore scheduled to be mobilised from disinvestment this fiscal, roughly half is expected from the sale of a small 5 per cent stake of the Government in the National Thermal Power Corporation (NTPC) through the latter's proposed IPO. The rest is to come from the Government selling its residual stake in companies already privatised.