Jaitley does a Chidambaram ahead of Budget

FM asks PSUs to pay hefty dividend

 Following in footsteps of his predecessor P Chidambaram, Finance Minister Arun Jaitley on Thursday asked public sector companies to pay a higher dividend of up to 30 per cent to help the government tie up its Budget deficit.

Cash-rich PSUs have also been asked to pay special dividend and issue bonus shares. The government is staring at Rs 50,000 crore shortfall from disinvestment proceeds alone. The demand for higher dividend comes at a time when India is growing at the fastest pace among major world economies, and the government’s oil subsidy bill has been drastically reduced, following a slump in global crude oil prices. The oil subsidy has been the major cause of rising Budget deficits in the past.

The demand also comes, despite the Reserve Bank of India paying a hefty dividend of Rs 65,895 crore to the government this year. The Centre’s total dividend payout was at a little over Rs 1 lakh crore this year.

In a letter to all ministries and PSUs, Economic Affairs Secretary Shaktikanta Das said, “It has been observed that there is a huge variation in dividends paid out by CPSEs, and hence, a need exists for a clear dividend policy. CPSEs need to take a decision on dividend within the clearly articulated framework of the government.”

A CPSE would now have to pay an annual dividend of 30 per cent of profit after tax (PAT), or 30 per cent of GoI’s equity, whichever is higher, as against the earlier norm of 20 per cent.

In case a CPSE has cash and free reserves, the company has to pay special dividend as a return for its equity investments. Earlier, cash-rich CPSEs of oil, petroleum, chemical and other infrastructure sectors had to pay 30 per cent dividend. In case of CPSEs with large cash or free reserves and sustainable profit, the company may have to issue bonus shares, the letter said.

Huge capital expenditure

In every financial year, the Finance Ministry nudges the PSUs sitting on hefty cash balance to either go in for huge capital expenditure, or shell out dividends.

But, in this year’s Budget, the government had made a case for greater public investment in infrastructure and other sectors to boost the economy. And, a higher dividend from PSUs will only leave them with less money to invest in new projects.

Deficit dues

     FM asks PSUs to pay higher dividend to help the govt tie up its Budget deficit
     Cash-rich PSUs have been asked to pay special dividend and issue bonus shares
     The Centre’s total dividend payout was at a little over Rs 1 lakh crore this year