FinMin wants 30% dividend from PSUs

The Modi government is once again looking at central public sector enterprises (CPSEs) to help it tide through a difficult financial situation. The Finance Ministry has spelt out a fresh policy for dividend payments by CPSEs, directing them to pay 30 per cent of the profit after tax or 30 per cent of the Government of India equity, whichever is higher.

This is 10 percentage points higher than what the CPSEs were paying earlier. The 2004 guidelines prescribe an annual dividend payment of 20 per cent of PAT or 20 per cent of equity, whichever is higher. However, for PSUs in the oil, petroleum, chemical and infrastructure sectors, the dividend payout was kept higher, at 30 per cent.

Noting that the Fourteenth Finance Commission had said that dividends should cater to the requirements of the government, the latest guidelines state that “this is especially true in times of the current fiscal crunch when the government has to cater to other public interests, too”.

The new policy has also asked PSUs with large cash or free reserves and sustainable profit to issue bonus shares. PSUs can also pay a special dividend to the government as a return for its equity investments.

“The capital investment requirements of CPSEs may be kept in view but it needs to be specifically assessed whether those investment requirements can be fully or partly met out of market borrowing, to leverage the favourable debt-equity ratios in the CPSEs,” said the policy note, pointing out that reliance on market borrowings would also bring more professionalism into these firms.

As part of the medium term fiscal consolidation policy, the Centre plans to lower its fiscal deficit from 3.9 per cent in 2015-16 to 3.5 per cent in 2016-17. For the current fiscal year, the Centre has targeted ₹36,174 crore as dividend from PSUs, a 27 per cent increase from the Revised Estimate of ₹28,423 crore last year.

Welcoming a clear and permanent policy on dividend payments by PSUs, UD Choubey, Director-General of the Standing Conference of Public Enterprises, said: “Ad hoc policies on dividend payments affect plans for capex and mobilisation of funds for research and development.

“PSUs, being state-owned entities, will provide dividends based on government directions and help reduce the deficit.”