New Delhi: In light of possible fiscal constraints arising from sluggish tax collections and lower-than-expected asset sale proceeds, the Indian government is considering an intensified dividend request from state-run entities, as disclosed by reliable sources.
Additionally, the government is contemplating the pursuit of special dividends from public sector oil companies, which have reaped substantial profits due to the surge in crude oil prices. The final decision will hinge upon the trajectory of crude oil prices in the forthcoming months, coupled with the financial performance of these entities.
Furthermore, there is a possibility of requesting share buybacks from select public sector undertakings (PSUs) that possess considerable cash reserves and are significantly government-owned, pending favorable market conditions.
The government’s course of action will be determined post an evaluation of the financial results for the September and December quarters of these PSUs. The PSUs may be approached for increased dividend contributions during the March quarter.
A source explained, “The performance of PSUs, including banks, has been robust during the initial and subsequent quarters. Given the anticipation of strong financial performance by public sector entities, even during the ongoing quarter amidst the festive season, the decision to seek augmented dividends will be contingent on the market climate.”
The sources emphasized that the movement of crude oil prices remains a key variable in the decision to demand special dividends from government-owned oil companies. If crude oil prices breach the $95-100 per barrel threshold, these oil marketing companies could experience cost pressures, particularly if consumer prices remain unchanged, potentially hampering their ability to make higher dividend payouts.
The government’s projected share of dividends from public sector companies for the fiscal year 2023-24 stands at ₹43,000 crore, according to the Union budget. Additionally, dividends and surpluses from the Reserve Bank of India, state-owned banks, and financial institutions are estimated to reach ₹48,000 crore in 2023-24, compared to ₹40,953 crore in the previous fiscal year’s revised estimates.
A senior economist at a prominent public sector bank stated, “There is certainly a case for the government to request an increase in non-tax revenue associated with dividends from companies in which it is the majority shareholder, especially as government finances may be strained due to the inability to meet the disinvestment target.”
The government’s divestment plans have been met with challenges, as highlighted by the potential postponement of the sale of its stake in IDBI Bank. This development could pose a challenge to achieving the ₹51,000 crore disinvestment target for the fiscal year.
Aside from IDBI Bank, the government had intended to sell its stake in Shipping Corp. of India Ltd, BEML Ltd, and Container Corp. of India Ltd during the year, but success in this regard has been limited.
Furthermore, in 2020, the finance ministry’s department of investment and public asset management advised central government-backed public sector enterprises to follow a consistent dividend policy and endeavor to increase dividends, considering factors such as profitability, capital expenditure requirements, cash reserves, and net worth.
Under these guidelines, central public sector enterprises were required to pay a minimum annual dividend of 30% of post-tax profits or 5% of net worth, depending on which of the two figures was higher. The entities encompass over 60 dividend-paying PSUs, along with approximately a dozen public sector banks.
