In the absence of interim dividend receipts, government has to look at alternatives to achieve 4.6% fiscal deficit.
The Union finance ministry is banking on dividends from cash-rich central public sector units (PSUs), financial institutions and even the Reserve Bank of India (RBI) to prevent its finances from going awry. It is asking all these bodies to pay a higher dividend to tide over its lack of money.
The move is in contrast to a trend in the private sector, as companies are likely to pay less dividend this financial year to shareholders than in 2010-11.
The Budget estimate for revenue in 2011-12 from PSU dividends and financial institutions is Rs 42,623 crore, lower than the revised estimate of Rs 48,727 crore for 2010-11. However, the ministry is expecting a higher payout, especially from RBI. Of Rs 42,623 crore, Rs 23,494 is budgeted from PSUs and Rs 19,129 crore from RBI, nationalised banks and financial institutions.
“We are talking to them to pay dividends on higher side. Ultimately, the decision will be taken by the boards of these institutions,” said a ministry official.
As the government is a majority shareholder, it benefits when government institutions declare higher dividend. In June, the finance ministry had asked all these bodies to remit their dues correctly. It started monitoring the payouts well in advance, unlike earlier years, and asked them to strictly adhere to the prescribed guidelines on payment of dividends. These rules say all profit-making PSUs should declare a minimum dividend of 20 per cent of net profit or equity, whichever is higher. The minimum dividend payout for companies in oil, petroleum, chemical and other infrastructure sectors is 30 per cent.
Many PSUs, however, deviate from the guidelines and pay less dividend. In the absence of interim dividend receipts, the government has to look at alternatives to augment tax revenue, other non-tax revenue and non-debt capital receipts, to achieve the fiscal deficit target.
The government’s revenue under the ‘dividend and profits’ head was Rs 21,230 crore in 2002-03. It was Rs 38,607 crore in 2008-09 and Rs 50,248 crore in 2009-10, when the economy was slowing.
The government had pinned hopes on dividend income, as it was facing a cash crunch due to the measures taken to come out of the slowdown.
On the other hand, the aggregate dividend payout by corporate India may be lower in 2011-12 than in 2010-11. Only 75 companies had declared an interim dividend in the first half of the current financial year, as compared to 107 in 2010-11.
Dividend payouts by PSUs and financial institutions could be a substantial source of non-tax revenue for the government, at a time when it is trying to restrict its fiscal deficit to 4.6 per cent of the GDP.
Of the year’s Rs 40,000 crore target for disinvestment, the government has merely managed to collect about Rs 1,100 crore, from a selloff of equity in Power Finance Corporation. And, only four months are left for the current financial year to end.
Last Friday, the government had sought Parliament’s nod to spend an additional Rs 56,848 crore in 2011-12, since its subsidy bill had increased. In the first six months of this financial year, the Centre’s fiscal deficit had touched 68 per cent of the target for all of 2011-12.
In an indirect admission of the fiscal deficit target going haywire, Finance Minister Pranab Mukherjee had recently told Parliament: “We have to be careful not to overdo ourselves in reaching this (deficit) target (4.6 per cent of GDP), since that can have an excessive slowing-down impact on growth.”
