To mop up higher non-tax revenue to bridge the fiscal gap, the government has asked public sector undertakings (PSUs) to pay dividends at 30% of their profits after tax, or equity, whichever is higher.
Dividends from PSUs have fluctuated from year to year and are estimated at R36,174 crore in 2015-16. With the dividends from PSUs abysmally low, the 14th Finance Commission (FFC) had noted that there is considerable scope in the future for obtaining higher levels of dividends through appropriate policy initiatives.
Under the 2004 guidelines, PSUs were required to pay dividend of 20% of profit after tax or their equity (30% in the case of oil, chemical and other infrastructure firms).
With direct tax and disinvestment revenue to likely fall short of targets, the Centre is banking on buoyancy in indirect tax collections, higher dividends and likely auction of spectrum to meet 2015-16 fiscal deficit target of 3.9% without drastically cutting spending even on the face of an adverse statistical impact due to lower nominal GDP growth. The 7th Pay Commission obligations — which would add an extra 0.65% of GDP to expenditure — likely additional pension (OROP) payouts and the possible stress on revenue collections from low nominal GDP growth would add to the fiscal stress next fiscal year.
In an office memorandum dated January 5, the finance ministry said any exception to the new dividend guidelines will have to be explained by the administrative departments to the economic affairs secretary. In this context, it highlighted the FFC remark that unlike operational matters in which the board and management should have autonomy, transfer to reserves and payment of dividends is a policy matter which the government should decide. This is especially true in times of the current fiscal crunch when the government has to cater to other public interests too, according to the memorandum.
For capital investment requirements of PSUs, it said they should explore if those requirements can be fully or partly met out of market borrowing, to leverage the favorable debt-equity ratios in the firms. It asked all the administrative departments to take stock of PSUs under their control and intimate the budget estimates or revised estimates in a timely manner to the budget division of the finance ministry.