Disinvestment does not dry up dividend flow, says Nirmala Sitharaman

Vinson Kurian Thiruvananthapuram | Updated on October 01, 2014 Published on October 01, 2014

The Centre has clarified that neither would the disinvestment process deny it dividends from Central Public Sector Enterprises (CPSEs) nor would the proceeds go towards consumption expenditure.

This was conveyed by Nirmala Sitharaman, Union Minister of State for Commerce and Industry, to Sitaram Yechury, CPI (M) leader and MP, who had doubted the rationale of disinvestment in the Rajya Sabha.

Dividend Inflow

“It is not correct to suggest that the disinvestment proceeds have been used for consumption expenditure,” the Minister said in her letter.

She said in all cases of disinvestment, the Government would retain at least 51 per cent equity and management control of the CPSEs.

“So, there would be a continuing inflow of dividends to the Government even after a part of the CPSE stake is sold in the market through disinvestment.”

She recalled that a National Investment Fund was constituted on November 3, 2005, into which proceeds from the disinvestment of CPSEs were being channelised.

Capex allowed

As much as 75 per cent of the annual income of the fund was to be used to finance select social sector schemes, which promote education, health and employment.

The balance was to be used to meet the capital investment requirements of profitable and revivable CPSEs. The Government, in 2009, granted a one-time exemption for utilisation of disinvestment proceeds over a period of three years till March 2012 (later extended by one more year) in view of the general meltdown.

This period was further extended till March 2013. Earlier, on January 17, the fund was restructured and proceeds with effect from 2013-14 was to be credited to the existing ‘public account’ under a separate head where they would remain there until withdrawn/ invested for approved purposes.

Yechury disagrees

Responding to the Minister, Yechury said he disagreed with her explanation as well as arguments defending the prudence behind disinvestment.

“I never pointed out about the total stoppage of flow of dividend from the CPSEs. The Centre is losing dividend income as it proceeds to offload its shares in the market at regular intervals.

“Dividend is a recurring flow to the Government. Foregoing a part of such recurring flow of income for one-time sales proceeds does not speak about economic prudence,” Yechury said.

SEBI prescription

According to the Minister, the approved purposes for use of the disinvestment funds were recapitalisation of public sector banks and insurance companies, subscribing to shares of CPSEs, and capex for Railways, among others.

“Specifically, over ₹15,000 crore realised as disinvestment proceeds during 2013-14 went towards meeting the capital expenditure of the Ministry of Railways,” the Minister said.

Disinvestment and listing of CPSEs improves corporate governance and helps in the realisation of the productive potential of these enterprises through improved efficiency and profitability, she added.

“In view of this, the SEBI has made it mandatory that already listed profitable CPSEs should have minimum public shareholding of 25 per cent.”

Published on October 01, 2014
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