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Friday, December 04, 2020

Govt asks CPSEs to pay higher dividends

Some CPSEs have also been asked to undertake share buyback, as mandated by the new rules for companies that have net worth of over Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore

By: ENS Economic Bureau | New Delhi | November 14, 2020 12:56:52 am
Dividend receipts of the Centre from CPSEs have been on a declining trend in recent years, mainly due to reduction in the Centre’s stake in many profitable companies via disinvestment.

Hard-pressed for funds, the central government has asked the companies owed by it to desist from offering just mandatory ‘minimum dividend’ to it, and dip into even their accumulated reserves to boost the payout this fiscal. The directive comes at a time when their profits have plunged and cash balances have shrunk due to the pandemic.

“CPSEs are advised to strive paying higher dividends taking into account relevant factors like profitability, capex requirements with due leveraging, cash/reserves and net worth,” the Department of Investment and Public Asset Management (DIPAM) noted in an office memorandum dated November 9. It also asked profitable companies to pay dividend on quarterly basis, instead paying the interim dividend for full year in February-March. “Reserves can also be used (by the CPSEs) to pay dividends,” DIPAM Secretary Tuhin Kanta Pandey told a TV channel on Friday.

The government has also asked 8-9 central public sector enterprises (CPSEs) to undertake buyback of their shares as per the new rules that mandated each public sector undertaking with a net worth of over Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore to exercise the option.

Dividend receipts of the Centre from CPSEs have been on a declining trend in recent years, mainly due to reduction in the Centre’s stake in many profitable companies via disinvestment. While the Budget estimate for the current fiscal is an ambitious Rs 65,747 crore, only Rs 10,000 crore has been received this far.

Dividends from CPSEs are a major part of the Centre’s non-tax receipts, with surplus transfer from the RBI and telecom spectrum receipts being other major components. In FY20, CPSE dividends were just Rs 35,000 crore, much below the revised estimate of Rs 48,256 crore, as per Controller General of Accounts data.

Reserves and cash surplus usually consist of capital reserves (to offset capital losses), securities premium reserve (can be used to buyback shares), general reserves (can be used for any useful purposes including dividend or working capital) and surplus cash (can be used for dividend). Unlike surplus, reserves are earmarked for specific purposes and are usually parked in term deposits of various maturities and current accounts, besides mutual funds. FE

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