Stretched finances: Is Govt eyeing PSU dividends, again?

Even as its ambitious disinvestment plans for the current fiscal year is turning out to be a damp squib, the Centre, yet again, is likely to rely heavily on public sector units (PSUs) for higher dividend payouts to manage its over-stretched finances.

Over the years, PSUs have been among the Centre’s major benefactors, contributing a significant portion of non-tax revenue in the form of dividend payouts. Between FY15 and FY19, they collectively paid ₹2.04-lakh crore in the form of dividend and other investments. Of this, mega PSUs (Maharatnas and Navaratnas) alone contributed over ₹1.66-lakh crore, or 82 per cent of the total.

This includes dividends from non-banking PSUs across a range of sectors such as petroleum (ONGC, IOC, BPCL), minerals (NMDC, Coal India), steel ( SAIL) and other strategic sectors ( see table ).

Consequently, the share of PSUs’ dividend in the overall non-tax revenue of the government grew from 16 per cent in FY15 to 18 per cent in FY19, after going as high as 27 per cent in FY16.

While the government has projected receipts (revised) for ₹48,256 crore from PSU dividends in FY20, it has budgeted a rather ambitious target of about ₹66,000 crore for FY21, even as several PSUs are facing severe stress due to the Covid-19 pandemic.

For instance, Coal India, which has delivered the highest dividend to the government over the last five years, registered a steep decline in net profit in the first two quarters of the current fiscal. Its net profit more than halved to ₹2,080 crore in the first quarter, followed by a 16 per cent decline in the second to ₹2,952 crore. Similarly, the standalone net profit of ONGC, another major dividend contributor, plunged 55 per cent to ₹2,878 crore for Q2 FY21.

Over the last few years, major PSUs have consistently increased their payouts to the government despite a dip in their profitability and mounting debts. In 2016, the Centre mandated them to pay a minimum 30 per cent of their profit after tax or 5 per cent of their net worth, whichever is higher, as dividend. This means even PSUs recording losses need to pay dividends if their net worth is positive.

Last month, the Centre issued a directive to PSUs, nudging them to pay higher dividends and share their profits on a quarterly basis without waiting for a full financial year.

In what can be music to the ears of policy makers, ICICI Securities, in a recent research note, said that based on consensus forecasts for CPSE index stocks (where available), it is apparent that the dividend per share for most CPSE stocks is expected to rise over FY20-23.

The report also identified PSU stocks such as Coal India, Hindustan Zinc, ONGC, GAIL (India), NMDC, PowerGrid Corporation and Indian Oil among the top dividend yield stocks currently.

Buy-backs

In addition to asking PSUs to cough up more dividend, the government is planning to shore up more funds by nudging them to go for more share buy-backs. Between FY19 and FY20, the government raised over ₹40,000 crore via share buy-backs by state-owned companies including NMDC, Hindustan Aeronautics and Coal India.