Finance ministry asks CPSEs to pay 30% payout, issue bonus shares

08 Jan 2016 Evaluate

In order to mop up higher non tax revenue to bridge the fiscal gap, the Finance ministry has asked Central Public Sector Enterprises (CPSEs) to pay dividends at 30% of their profits after tax, or equity, whichever is higher and that CPSEs with large cash reserves and sustainable profit may issue bonus shares. This move comes at a time when the government is looking to adhere to the fiscal deficit target amidst a massive shortfall in the disinvestment receipts. This is 10 percentage points higher than what the CPSEs were paying earlier. Finance ministry has notified that there were huge variations in the dividends paid out by the CPSEs and hence there was a need for a clear policy on dividends.

The ministry has further said that due account should be taken of cash and free reserves with the CPSE, and accordingly special dividend would need to be paid to the government, as a return for its equity investments. It also notified that the capital investment requirements of CPSEs may be kept in view but it needs to be specifically assessed whether those investment requirements can be fully or partly met out of market borrowing, to leverage the favorable debt equity ratios in the CPSEs. The new policy has also asked PSUs with large cash or free reserves and sustainable profit to issue bonus shares. PSUs can also pay a special dividend to the government as a return for its equity investments.

The ministry said that the Fourteenth Finance Commission (FFC) report which had remarked that the dividends policy should cater to the requirements of the government also, as it would in case of any prudent investor or owner. Dividends from PSUs have fluctuated from year to year and are estimated at Rs 36,174 crore in 2015-16. With the dividends from PSUs abysmally low, FFC had noted that there is considerable scope in the future for obtaining higher levels of dividends through appropriate policy initiatives.

Under 2004 guidelines, it is prescribed an annual dividend payment of 20 per cent of profit after tax (PAT) or 20 per cent of equity, whichever is higher. However, for PSUs in the oil, petroleum, chemical and infrastructure sectors, the dividend payout was kept higher, at 30 per cent.

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