The Finance Ministry has begun an exercise to ask profit-making Central public sector enterprises to ensure a reasonable return on investments made by the government and is seeking out interim dividends to enrich its coffers. Companies with healthy cash reserves will be encouraged to declare special dividends.
The profit-making Central PSUs have been asked to schedule board meetings and other formalities to declare interim dividends before December 31, 2007.
According to the Finance Ministry’s guidelines, the government nominees on the board of Central PSUs will ensure that the profit-making PSUs declare a minimum dividend on equity of 20 per cent or a minimum dividend payout of 20 per cent of post-tax profits, whichever is higher. The minimum payout in respect of oil, petroleum, chemical and other infrastructure sector is 30 per cent of post-tax profits.
Revenues of public sector companies contribute to the government’s overall income under the head non-tax revenue. In 2007-08, the government has estimated an earning of Rs 33,925 crore from dividends and profits of central public sector companies, a substantial increase from the revised estimates of Rs 30,438 crore of 2006-07.
“Dividend from Central public sector undertakings (CPSUs) being a return o the investments made by the government should be commensurate with the profits made by the company. A lower than reasonable level of dividend translates as an implicit subsidy which the government can ill-afford, given the level of commitments especially in the social sector, while trying to achieve the fiscal targets mandated by the Fiscal Responsibility and Budget Management Legislation,” finance secretary D Subbarao has said in a letter.
The letter clarifies that the guidelines only indicate the minimum level of dividend expected from profit-making public sector enterprises. “Undertakings with larger share of disposable profits/ healthy cash reserves can consider declaring higher returns/ special dividends,” the letter added.