Can cash rich PSUs help the government?

The Union Finance ministry has asked the PSU companies to pay higher dividend and help the government meet its expenditure. We at DSIJ feel that PSU companies will declare higher dividends in hopes of attracting investors and partly solve the government’s problems.

The Indian government had estimated fiscal deficit to be 4.6% of GDP in 2011-2012. However it seem that it may not achieve the  target. This is evident from the fact that in the April to August 2011 period (5 months), fiscal deficit stood at 66.3% i.e Rs 2,73,523 cr of the budgeted estimate. 

Even the disinvestment target of Rs 40,000 cr for FY12 has not been met due to the volatility in the markets. The government also announced an additional borrowing of Rs 53,000 cr in the second half of FY12 to meet its requirements.   

In such a scenario the government has asked PSU companies to declare higher dividends. The government estimates that the revenue from dividends could amount to Rs 42623.68 cr in FY12.

In 2010-11, RBI transferred a surplus of Rs 15,009 cr to the government. We assume that it could transfer approximately the same amount or more this year.

So approximately Rs 23000 to 27000 cr worth of funds should be provided by PSU companies in dividends.

In the BSE PSU index, we analyse how much extra dividend must the PSUs declare to help the government. In FY11 a total of Rs 36001 cr in dividends were declared. A 10% increase would give approximately Rs 39600 cr. While a 20 to 30% rise hits the Rs 43200 and Rs 46800 cr marks. We feel (assuming a 60% government holding in a PSU) a dividend declaration of 20% or more will put approximately Rs 26000 cr in the government's kitty.  

The following table shows the top 25 PSUs (excluding banks) in terms of Reserves and Cash balance as on 31^st March 2011.