![Government may ask PSUs and Banks to Pay Higher Dividends](/wp-content/uploads/2023/10/Government-may-ask-PSUs-and-Banks-to-Pay-Higher-Dividends.webp)
The Indian government is considering asking state-run companies to pay higher dividends in order to meet its revenue targets. This is due to a combination of factors, including sluggish tax collections and lower-than-expected asset sale proceeds.
The guidelines state that CPSEs must pay a minimum annual dividend of 30% of profit after tax or 5% of net worth, whichever is higher. There are over 60 dividend-paying PSUs and about a dozen public sector banks.
The government’s share of dividends from public sector companies is projected to remain steady at ₹43,000 crore for 2023-24, according to the Union budget. Additionally, dividend and surplus payouts from the Reserve Bank of India, state-run banks and financial institutions are expected to be ₹48,000 crore for 2023-24, compared with ₹40,953 crore in the revised estimates for the previous fiscal.
The government is particularly interested in receiving higher dividends from oil companies, which have reported bumper profits due to soaring crude prices. However, the final decision will depend on the movement of crude oil prices in the coming months and the profitability of these firms.
In addition to higher dividends, the government is also considering seeking share buybacks from select public sector undertakings (PSUs) with substantial cash reserves and significant government shareholdings. This would allow the government to reduce its stake in these companies while still generating revenue.
The government’s decision on how much to demand from these companies will depend on the performance of PSUs in the September and December quarters. If PSUs continue to report strong financial performance, the government is likely to ask for higher dividends in the March quarter.
There are several reasons why the government is considering this move.
- First, the government’s finances are under pressure due to a combination of factors, including higher spending on subsidies and lower tax revenues.
- Second, the government has fallen short of its disinvestment targets for the current financial year.
- Third, the government is looking to boost its non-tax revenue in order to reduce its reliance on borrowing.
The move to demand higher dividends from state-run companies is likely to be met with mixed reactions. On the one hand, some people may argue that it is unfair to burden state-run companies with higher dividend payments, especially when they are already facing headwinds such as high inflation and rising costs. On the other hand, others may argue that it is necessary for the government to take steps to improve its financial position and reduce its fiscal deficit.
It is important to note that the government has not yet made a final decision on whether or not to demand higher dividends from state-run companies. However, the fact that the government is considering this option suggests that it is serious about addressing its financial challenges.
Implications for Investors
The government’s move to demand higher dividends from state-run companies is likely to have a mixed impact on investors. On the one hand, investors in state-run companies may see their dividend yields increase. On the other hand, investors in these companies may also see their share prices decline due to concerns about the impact of higher dividend payments on the companies’ profitability and growth prospects.
Investors in oil companies may be particularly concerned about the impact of higher dividend payments on their profits and growth prospects. Oil companies are already facing a number of challenges, including high oil prices, rising costs, and geopolitical uncertainty. Demanding higher dividend payments from these companies could further squeeze their margins and limit their ability to invest in growth.
Overall, the impact of the government’s move to demand higher dividends from state-run companies on investors will depend on a number of factors, including the specific companies involved, the level of dividend payments demanded, and the overall market conditions.