The Union government may look to its cash-rich public sector companies and those who are falling behind in their capital spending plans for the current fiscal to declare higher dividends this year to reward their shareholders in this difficult period. of the Covid-19 pandemic.
Official sources said USPs with stock prices higher than their book values and those with enough cash may be asked to pay higher dividends in fiscal year 21. A call will be taken after the results of the third quarter of companies in late January or early February next year.
Additionally, PSUs, particularly in the oil sector, which are expected to make large inventory gains due to strengthening crude prices, may also be considered for higher interim dividends or special dividends and some may even be considered for buyback. of shares, depending on market conditions.
In a recent review meeting, the Finance Ministry had asked all central PSUs to increase their investment and complete 75 percent of fiscal year 21 capex in December and more than 100 percent next March.
The idea is to increase capital spending to strengthen the country’s industrial growth that has slowed in the Covid-19 period. But if the objectives are not reached, the sources said, the money should reach the treasury in the form of dividends or any other instrument.
Since the central government is the largest shareholder in the USPs, higher dividends would go a long way to help it fill its coffers at a time when revenues are tight due to a general slump in economic activity during the pandemic, while expenses have increased considerably.
Dividends from non-financial PSUs have been budgeted at Rs 65,747 crore in FY21. Any increase in this amount will give the government a boost to non-tax revenues and help it save the growing fiscal deficit that, according to initial estimates, is now pegged at about 8 percent of GDP.
The Union Finance Minister, Nirmala Sitharaman, and her predecessors, including the late Arun Jaitley and P Chidambaram, have maintained a policy of warning nonfinancial SOEs that if they are not using their cash reserves to meet the needs of investment, they should give it to the Center. through dividends or share buybacks.
According to the guidelines issued by the DIPAM divestment department, each CPSE must pay a minimum annual dividend of 30% of PAT or 5% of net worth, whichever is greater.
While the government is seeking investment and dividends in its USPs, companies are struggling to meet investment targets, given the project’s financial and implementation constraints.
Officials from some UPMs said that Covid-19 had severely affected demand and slowed down project implementation. Consequently, there is already a pressure on your resources that would increase further if additional dividends were paid.
Various power supply units in the power and mining sector have completed nearly 40 percent of their annual capex in November due to the restricted business environment.
(You can reach Subhash Narayan at subhash.n@ians. In)
–IANS
sn / tsb
(Business Standard staff may have only modified the title and image of this report; the rest of the content is automatically generated from a syndicated feed.)
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