AWARE of its fiscal squeeze, the finance ministry has denied exemption to a slew of state-owned companies from paying dividend or buying back government-held shares saying that they should pay it upfront and fund their long-term investments through market borrowing.
IRCTC, Rail Vikas Nigam Ltd and Goa Shipyard Limited were told last month to pay “maximum permissible dividend (100 percent of profit after tax) as dividend” as there was “enough scope to leverage its net worth to meet their investment requirements”.
Rashtriya Chemicals & Fertilizers Ltd and MMTC were exempted from paying dividend at 5 per cent of net worth but were told to cough up 30 per cent of the profit after tax as dividend. Exemption to Solar Energy Corp of India from paying dividend was left for settlement between administrative ministry New & Renewable Energy and the Finance Ministry’s Department of Economic Affairs.
Using the “net worth” logic, the Committee on Management of Government Investments in CPSEs asked Garden Reach Shipbuilders Ltd to buy back 7.5 per cent of its free reserves and paid up equity as it stood on March 2017.
Dividend from central public sector enterprises (CPSEs) or their buying back government-owned shares are major avenues that the government is eyeing to increase its revenue realization to finance government debt and meet the fiscal deficit target of 3.2 per cent of the GDP for 2017-18.
An economist with a rating agency who did not wish to be identified said that “every penny mattered”. “The government is walking a tightrope in meeting its revenue target as uncertainty is looming over GST collections and also over non-tax revenues,” he reasoned.
The NDA government’s worry on non-tax revenue is on account of lower surplus transfer from the Reserve Bank of India and a high disinvestment target of Rs 72,500 crore. The government has only garnered Rs 37,839 crore (as on November 16) through disinvestment proceeds in the current financial year.
Records with The Indian Express show that that 14 CPSEs had approached the Committee — controlled by Finance Ministry’s Department of Investment & Public Asset Management (DIPAM) — seeking exemption from Guidelines on Capital Restructuring, including issuance of bonus shares.
The panel, on October 25, excused loss-making Steel Authority of India Ltd (SAIL) and State Trading Corp (STC) and low profit making Engineering Projects (India) Ltd from paying dividend. NLC India Ltd, which paid excess dividend for financial year 2016-17, was told to pay at maximum rate when it receives tax refund.
SAIL, which incurred losses in the last two financial years, had been directed by Department of Economic Affairs last September to pay dividend at 10 per cent of the nominal capital to “boost shareholder’s confidence in the company”.
The Committee also directed Bharat Dynamics Ltd and National Mineral Development Corp to issue bonus shares during fiscal 2017-18 and 2018-19 respectively. MMTC’s request for similar exemption was denied on grounds that its defined reserves and surplus were more than 10 times of its paid-up equity share capital.