Non-tax revenues to ride on dividends, strategic sales

Jaitley may set much higher targets for dividends from PSUs and from RBI/PSBs as well as provide a push towards strategic stake sales

Revenue from non-tax sources and capital receipts make up around 30 per cent of total revenue receipts in most budgets but pull in more than their weight to make up for the inevitable shortfall from direct taxes year after year.

For the upcoming Union Budget, Finance Minister Arun Jaitley is expected to set much higher targets for dividends from public-sector companies and from the Reserve Bank of India and other state-owned-banks as well as provide a push towards strategic stake sales in loss-making PSUs. However, the overall budgeted disinvestment target for 2016-17 could be lower than 2015-16.

Jaitley needs all the revenue resources he can get next year. He has stated that he will need to provide around Rs 1.1 lakh crore combined for the implementation of the one-rank one-pension scheme and the recommendations of the Seventh Pay Commission. Additionally, the Budget will likely come good on his promise to India Inc to continue the government's public spending push, with capital expenditure for the next year expected to come close to Rs 3 lakh crore for the first time. The Centre is also looking to boost the allocation to agriculture and job schemes to counter the slowdown in the rural economy.
 

But before speaking about the upcoming Budget, it is necessary to understand what the expectations for non-tax revenue items for the current year were, what has been done so far, and how that pans out in 2016-17.

The total combined budgeted estimates for 2015-16 from non-tax revenue and non-debt capital receipts were Rs 3.02 lakh crore. If one leaves aside interest receipts and recoveries of loans and advances, the major items were dividends from PSUs at Rs 36,174.14 crore, dividends from RBI and state-owned financial institutions at Rs 64,477 crore and a total disinvestment target of Rs 69,500 crore.

The finance ministry has asked all profit-making PSUs to pay a minimum dividend of 30 per cent of their post-tax profit for the year, compared with past instances where only the upstream oil and gas PSUs were asked to pay 30 per cent dividend while a minimum 20 per cent dividend was sought from other PSUs.

Meanwhile, RBI had paid the Centre a dividend of Rs 66,000 crore in August, the highest ever, and already past the total target of dividends from the central bank and financial institutions. The dividends from PSU banks could be hit as they have slumped to losses or lower profits in the latest quarter due to increasing pressure from bad loans. But the overall target has already been achieved.

For 2016-17, one can expect more of the same. Cash-rich PSUs like Coal India, ONGC, Oil India, SAIL, NTPC and others will be told by the government to pay dividends much higher than this year's target if they are not investing in infrastructure. It is clear that the government will dig into the PSU cash pile of over Rs 2 lakh crore in more ways than one, including through buybacks. More on that later. Banks will continue to struggle with high NPAs but financial sector behemoths like Life Insurance Corporation and the State Bank of India will be expected to pay higher dividends than what they end up paying this year. The same goes for the RBI.

On the disinvestment front, out of the total budgeted estimates, Rs 41,000 crore was expected from 5-15 per cent stake sales in profitable listed PSUs and Rs 28,500 crore from strategic stake sales in sick companies. However, the volatile market conditions have put a wet blanket on the prospect of actual figures coming anywhere close to those numbers.

So far, the disinvestment department has raked in nearly Rs 13,340 crore from stake sales in Indian Oil, Dredging Corporation of India, Power Finance Corporation, Rural Electrification Corporation, and Engineers India Ltd through the offer-for-sale route.

No action has been taken on strategic sales and the revised disinvestment estimates for the year are likely to be closer to Rs 30,000 crore. Because of continued volatility in the equity markets, and as most of the other companies up for minority stake sales being in commodities like Coal India, Nalco, MMTC, Oil India and ONGC, the Centre has asked the PSUs to buy back shares to make up for any shortfall.

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SHARING THE LOAD

PSU dividends

• 2015-16 (budgeted) (Rs cr): 36,174.14
• Likely scenario in revised estimates for 2015-16: PSUs to pay 30% dividend, compared with 20 or 30% in previous years
• Expected trends for 2016-17: Govt to seek higher dividends across the board or direct PSUs to invest heavily in infra

RBI/PSB dividends

• 2015-16 (budgeted) (Rs cr): 64,477
• Likely scenario in revised estimates for 2015-16:
  * RBI paid highest ever dividend of Rs 66,000 cr
  * PSBs bottomlines hit by NPAs
• Expected trends for 2016-17:
  * RBI expected to carry the burden for this item
  * PSB balance sheets expected to remain weak due to NPAs, to affect dividend payout

Disinvestment

• 2015-16 (budgeted) (Rs cr): 69,500
• Likely scenario in revised estimates for 2015-16:
  * Weak markets means only Rs 13,340 cr achieved from stake sale target of Rs 41,000 cr
  * Strategic sale target of Rs 28,500 cr; Not much action expected
  * Revised estimates likely Rs 30,000 cr; PSUs told to buyback shares to pick up slack
• Expected trends for 2016-17:
  * Big focus on strategic sale expected. Disinvestment commission being revived.
  * Companies may be sold outright or revived with capital infusion from private partners
  * Cochin Shipyard IPO on the cards. More IPOs being considered
  * Weak market conditions may continue, buybacks route may be used again