The government has directed public sector companies to pay dividend of, at least, 30 per cent of their profits after tax or their equity, whichever is higher, as part of efforts to curb the budget deficit.
The new dividend policy has hiked the dividend income for the Central government from the earlier rates of 20 per cent of profit after tax (PAT) or 20 per cent of equity, whichever is higher. Firms with large cash surplus such as Coal India Limited (CIL) could also issue bonus shares, the finance ministry has said in its order to chiefs of Central public sector enterprises (CPSEs).
The finance ministry has stated that as a majority owner of CPSEs, the government has decided on the new dividend policy. According to the new policy, a CPSE will declare an annual dividend of 30 per cent of PAT or 30 per cent of the Central government’s equity, whichever is higher.
The order further states that companies will have to declare a special dividend as a return for its equity investment and issue of bonus shares by companies having large cash reserves.
The companies will have to look at market borrowings for capital investment so as to leverage the favourable debtequity ratio. The economic affairs department also said that market borrowing for capex would enforce more professionalism in CPSEs.
Major public sector companies which the government intends to rope in for the resource mobilisation exercise include CIL, upstream oil giant ONGC, power major NTPC, Power Grid Corporation, Bharat Heavy Electricals Limited and downstream oil companies. The government expects revenue collection to fall short of the budgetary target by 5-7 per cent mainly as the growth in direct taxes has fallen short of target due to the economic slowdown. Total tax revenues are likely to be around Rs 14 lakh crore this fiscal as against the Budget estimate of Rs 14.5 lakh crore.
The government has also been forced to defer the stake sale in public sector companies due to the volatility in stock markets. As a result, it will not be able to meet its disinvestment target of Rs 69,500 crore, which had included a strategic stake sale of Rs 28,500 crore. With first half of this fiscal already over, the government has garnered only Rs 12,600 crore through stake sale in Indian Oil Corporation, Power Finance Corporation, Rural Electrification Corporation and Dredging Corporation.
However, the government is now considering diluting its 11.7-per cent stake in Axis Bank it holds through the Specified Undertaking of the Unit Trust of India (SUUTI) to meet shortfall in disinvestment proceeds.
At the current market price, the government could raise about Rs 11,240 crore by selling 27.48 crore shares. The Axis Bank stock closed at Rs 409.35 on the Bombay Stock Exchange on Thursday. SUUTI currently holds 11.7 per cent stake in Axis Bank after selling off 9 per cent stake in the lender in March 2014, which helped mobilise Rs 5,500 crore. Union finance minister Arun Jaitley is keen to meet the fiscal deficit target of 3.9 per cent of GDP for this fiscal in order to strengthen the fundamentals of the economy. A higher fiscal deficit leads to inflation and also increased government borrowing, which squeezes out credit for corporates.