New Delhi, April 3, 2018

Part of efforts to optimise use of idle cash and surplus through effective capital rejig

The Finance Ministry has asked public sector enterprises (PSEs) to ensure that their subsidiaries and joint ventures, even those where they have a minority stake, pay “optimum” dividend to the Centre.

The recent missive, from the Department of Investment and Public Asset Management (DIPAM), is part of the government’s efforts to ensure optimum use of idle cash and surplus with PSEs through effective capital restructuring.

“From the reports received in respect of some subsidiaries and joint ventures, it has been observed that some have not complied with the capital restructuring guidelines for various reasons,” said DIPAM, in the recent circular.

DIPAM Secretary Neeraj Kumar Gupta had also tweeted last week, “Financial Advisors of Ministries have been urged to closely monitor implementation of Capital Restructuring Guidelines of DIPAM by joint ventures and subsidiaries of CPSEs. They govern payment of dividend, buy back of shares and issue of bonus shares.”

In May 2016, DIPAM had issued comprehensive norms for capital restructuring of PSUs to ensure that they do not sit on idle cash but invest it for productive uses. But, the guidelines have to be complied by not only subsidiaries where PSUs have a controlling stake but also those where they hold a minority stake.

This was highlighted in an earlier set of guidelines issued in February. DIPAM had said, “Also ensure payment of optimum dividend even by subsidiaries and joint ventures in which CPSEs have minority stake… before the decision of-the dividend payment by the CPSE in the annual general meeting.”

The government has time and again prodded PSUs to pay liberal dividends and also asked them to step up capital spending, in order to boost economic growth. In 2017-18, resources from public enterprises were estimated at Rs.3.85 lakh crore, which was then raised to Rs.4.76 lakh crore in the Revised Estimates. This has been increased further to Rs.4.78 lakh crore in the Budget Estimate for 2018-19.

PSUs in the infrastructure sector are the most affected by these since they have multiple subsidiaries and joint venture companies. For example, NHAI had 11 subsidiary or associate companies, NHPC has five joint ventures/subsidiaries and NTPC has some 26 companies listed as subsidiaries.

While two CPSEs said they were unaware of the new dividend distribution norms, experts said this has been a standard practice, even for private companies.

“Since these are PSUs, the government can demand a dividend from them. But there should be a uniform dividend policy,” said UD Choubey, Director-General, SCOPE.

While conceding that the government has to fund its fiscal deficit and needs resources, another expert said that ideally the funds from dividend should be used only for select purposes such as the social sector, research and development and project expansion.

[The Hindu Business Line]