Another govt tactic to get cash: force PSUs to pay higher dividends

An increasing fiscal gap (the difference between government revenues and expenses) has made the government put on its ‘crazy ideas’ cap one too many times, to the annoyance of public-sector companies who are being nudged into participating in unnecessary cash handout schemes.

The government’s original plan of divestment fell flat on its face after the markets crashed 25 percent last year. A proposal to force companies to buy back shares in each other (which would benefit the government the most as it is the biggest investor in state-run enterprises) also got the cold shoulder from various ministries.

The next idea was to transfer the assets of the Special Undertaking of Unit Trust of India (SUUTI), which holds the government’s stake in entities such as Axis Bank and ITC, to a new holding company owned and funded by banks. However this idea is also under consideration.

Now, the latest idea from the government is to squeeze top-public sector companies into coughing higher dividends.

So far, only one company has come out in favor of the plan. “Since we are debt free and have sufficient cash balance, we can afford a little bit (increase dividends) but not too much,” said BL Bagra, CMD, Nalco, to CNBC TV-18.

That view, however, isn’t shared by several of his peers in the public-sector.

The higher dividend plan is the government’s latest - and desperate - bid to meet its disinvestment target of Rs 40,000 crore for the financial year ending March 2012, which has primarily failed because of poor equity markets.

R Gopalan, Secretary, the Department of Economics Affairs Secretary, has already met key public sector undertakings (PSU) such as Coal India, Nalco, SAIL, RINL, Neyvelie Lignite yesterday, to discuss their expansion plans and cash reserves, reported CNBC TV-18. These companies made presentations about how much cash they have and how much they could spare to the government as dividends.

Of the top 17 PSUs, which boast cash balances of almost Rs 1.62 lakh crore, Coal India had the largest cash reserves of almost Rs 55,000 crore, followed by ONGC with Rs 27,441 crore. According to sources, Coal India might consider a Rs10-12 dividend per share, which should net the government nearly Rs 9,000 crore. However, not all companies are in favour of the proposal and have said their dividend payouts could remain the same as last year.

The opposition is similar to what was seen for the share buyback plan, which was stiffly opposed by the Ministries of Power, Coal, Steel and Heavy Industries on the grounds that they needed to conserve money for future expansion plans.

Ironically, on 3 January, there was a high-level meeting between state-run enterprises and the government in which companies were urged to deploy their cash to increase capital expenditure to reverse an economic slowdown.

State-run entities will be in a fix over what to do next - invest in capex or shell out more dividends to the government.

Another option is also possible: Life Insurance Corporation (LIC) has a target of investing Rs 45,000 crore for the year ended March 2012. So far, LIC has already invested Rs 25,000 crore in equities and plans to invest another Rs 15,ooo-20,ooo crore in the three months to March, an article in Business Standard said.

So once again, all hopes could be pinned on LIC.

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