20 PSUs can help cut fiscal deficit by Rs 20,000 crore- Crisil Research

CRISIL Research has estimated that the centre can reduce its fiscal deficit by as much as Rs 20,000 crore this fiscal by using cash reserves of public sector units (PSUs).

By March 31, 2014, the top 20 PSUs, by cash holding, will have an estimated pre-dividend corpus of around Rs 160,000 crore.

CRISIL Research's analysis shows these companies are comfortably placed to pay special dividends of Rs 27,000 crore over and above their normal dividend payouts, without impacting capex plans.

Apart from the expected shortfall in tax revenue collections, the Union government may not be able to meet its disinvestment target, which could result in it falling short of the budgeted fiscal deficit. In such a scenario, the cash reserves of PSUs provide an alternative source of income. However, a lot will depend on whether the government is able to convince the companies to part with the surplus cash as a special dividend, said Mukesh Agarwal, President, CRISIL Research.

 

At the end of the last fiscal, the total cash holding with these 20 PSUs was Rs 170,000 crore. CRISIL Research expects internal accruals and debt inflows (for project financing) to meet most of the capex requirements in 2013-14. By the end of this fiscal, the pre-dividend corpus with these companies is expected to be around Rs 160,000 crore.

We estimate, these companies are well placed to distribute 40% of the corpus (Rs 64,000 crore) as dividend without impacting growth plans.

That is Rs 27,000 crore more than the Rs 37,000 crore dividend paid by these companies last fiscal. In proportion to the shareholding, the excess payout to the government could, thus, be Rs 20,000 crore (out of the extra Rs 27,000 crore).

Without incorporating the extra dividends (over and above what was paid last year), CRISIL Research expects this year's fiscal deficit at 5.2% of the gross domestic product (GDP).

The Rs 20,000 crore additional income would approximate 20 basis points of the fiscal deficit, which can help the government reach closer to its stated fiscal deficit target of 4.8%.

Adds Sandeep Sabharwal, Senior Director, CRISIL Research: The government will have to cut spending to meet its fiscal deficit goal. But this may not augur well for an economy that has slowed down and fresh spending cuts can also create growth hurdles. Hence, the government could persuade companies with large cash reserves to announce special dividends or a buyback programme.

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