Taking a cue from private companies like the tech biggies which are known for generously rewarding shareholders, a clutch of cash-rich PSUs has enriched the government coffers with liberal dividends in the last couple of years. In some cases, the payouts exceeded the net profits at these state-run firms — Coal India, for instance, paid Rs 12,353 crore as dividend in FY17, a whopping 190% of its net profit in the first nine months of the year. NMDC, Nalco, ONGC, NHPC and Bharat Electronics are among the state-owned companies which announced huge dividends in the last two years.
In addition, many PSUs are buying back their own shares, a process that has also added to the government’s kitty. Dividends and buybacks together were as high as 844% of the April-December 2017 net profit of Nalco, while the corresponding figures for NMDC and Bharat Electronics were 425% and 402%, respectively.
A large part of the PSU bonanzas to shareholders in FY17 can be attributed to a policy change by the government in 2016: It set a very high dividend target of Rs 77,000 crore, more than double the Rs 30,616 crore received in the previous year. The new guidelines on dividend said every PSU would pay a minimum annual dividend of 30% of profit after tax or 5% of the net worth, against 30% of PAT and 30% of government equity prior to that. After consultations, even higher dividend targets were set for some PSUs to meet budget revenue targets, as some other non-tax receipts like telecom spectrum proceeds and disinvestments under-performed. While companies including Coal India and NMDC paid high dividends as their capex requirements were low, some including Indian Oil and Nalco gave high dividends despite huge capex in 2016-17.
The government also mandated every CPSE with a net worth of above Rs 2,000 crore and cash and bank balance of over Rs 1,000 crore to exercise the option to buy back a portion of their shares with effect from FY17 after factoring in their capex plans. The move paid off as seven PSUs bought back shares worth 18,963 crore or 41% of total disinvestment receipt in FY17.
A Coal India official said the company dipped into reserves to pay the special dividend and to buy back shares as the company had no significant capex plans. However, an official of another PSU said such excess dividends should not become an annual exercise as it could hurt capex plans in future.
Despite the heavy dividend outgoes, central PSUs and departmental undertakings have bucked the investment famine in the economy in 2016-17. According to official sources, these entities invested Rs 2.54 lakh crore in projects worth Rs 500 crore and above in the last financial year, achieving a creditable 96% of the annual target.
According to the audited data available at the end of March 2016, PSUs had a surplus cash of about Rs 2.4 lakh crore.