At a time when the Central Government is finding tough to keep the fiscal deficit within the budgeted target of 4.8 per cent, a leading research agency says public sector undertakings can give some comfort on that front.

“The Centre can reduce its fiscal deficit by as much as Rs 20,000 crore this fiscal by using the cash reserves of PSUs,” Crisil Research said in its latest report, while adding that the top 20 PSUs (in terms of cash holding) will have an estimated pre-dividend corpus of around Rs 1.6 lakh crore by the end of current fiscal.

Fiscal deficit target

The Rs 20,000 crore additional income could give a relief of 20 basis points to the fiscal deficit. The agency feels that this can help the government reach closer to its stated fiscal deficit target of 4.8 per cent.

Most of the private agencies estimate the fiscal deficit to be between 5.1 and 5.3, while Crisil’s estimate is 5.2 per cent (if there is no special dividend from PSU).

The PSUs 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.

It may be noted that the Central Government has already exhausted 84 per cent of its fiscal deficit target in the first seven months (April-October) of the current fiscal.

Tax collection is 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 difficult for the Government to keep the overall deficit under check.

Special dividend

The Government has already indicated that it will seek special dividend from PSUs. Taking this forward, the research agency’s analysis shows top 20 companies are comfortably placed to pay a special dividend of Rs 27,000 crore over and above their normal dividend payouts, without impacting the capital expenditure plans.

“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,” Crisil Research President Mukesh Agarwal said.

The agency noted that these companies were having total cash holding of Rs 1.70 lakh crore at the end of 2012-13. Now it is expected that internal accruals and debt inflows (for project financing) will help in meeting the capital expenditure requirement in 2013-14.

Pre-dividend corpus

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 per cent or Rs 64,000 crore could be distributed as dividend without impacting growth plans.

Last year, these PSUs paid Rs 37,000 crore. 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 said.

Sandeep Sabharwal, Senior Director of Crisil Research, said that the Government will have to cut spending to meet its fiscal deficit goal. But this may not augur well for an economy that has slowed down and fresh spending cuts can also create growth hurdles. Hence, “the Government could persuade companies with large cash reserves to announce special dividends or a buyback programme,” he added.

Shishir.s@thehindu.co.in

(This article was published on December 23, 2013)
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