Naturally, the impetus behind this early and high payout is the government's straitened finances. The fiscal deficit target of 4.8 per cent of gross domestic product looks ever more unreachable. By November, it had already reached 94 per cent of its budgeted amount of Rs 5.42 lakh crore. The government is, thus, desperately trying to raise revenue in any way possible; and the cash piles of some public sector undertakings (PSUs) are an obvious target. CIL itself was sitting on Rs 67,000 crore. It's now suspected that other cash-rich PSUs - the National Minerals Development Corporation, for example, which had cash reserves of Rs 22,500 crore at the halfway point of 2013-14 - might be subject to the same pressures to disburse cash to the government.
Coal India's massive dividend raises several questions. First, is this action in the interest of the company, and of its minority shareholders? It is certainly good general practice for a company sitting on big reserves of cash to hand it back to its shareholders. If a company just adds to cash reserves year after year, it suggests that shareholders - rather than management - might have better ideas about what to do with the cash. And, in any case, the government as majority shareholder certainly has the prerogative to raise the dividend payout. However, some caveats apply in this case. One important fact is that Coal India, as India's monopoly coal miner, does indeed have responsibilities for the future. Coal is in short supply. Several fuel supply agreements have been signed. Some environmental clearances have reportedly been held up, and have only just come through. If so, it may be the case that in the coming financial years, CIL might have to scale up operations - or, alternatively, buy coal abroad to meet guarantees. Has that been taken into account? True, CIL still has substantial cash in hand. But if that turns out to be insufficient to meet supply guarantees - which will affect the downstream power sector - then questions will need to be asked about this big payout.
Importantly, this government's problematic approach to PSUs stands revealed. The Budget set a Rs 40,000-crore disinvestment target. Selling shares in CIL was supposed to contribute to that. The government promised a public offer. But Coal India's trade unions objected, and the government supinely submitted to such pressures. So, naturally, the government milked the company through dividends instead. On the other hand, the reason CIL has cash reserves is that it is inefficient and slow when it comes to its stated duty: expanding access to coal. Increasing coal supply would require cash-heavy investment in techniques and new pitheads. So its cash reserves are actually a sign of its failure, not its success. This process is unsustainable. The only way forward is greater private competition in coal extraction.