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Government's Double Standard on PSUs
Wed, 13 Jan Pre-Open

A year back, government had set an ambitious target to raise Rs 695 billion through disinvestment in FY16, despite missing the previous year's target by more than half. The disinvestment was aimed at making the Public Sector Undertakings (PSU) more competent and autonomous as compared to the private sector enterprise. Assessing the current situation, disinvestment seems impossible due to the global commodity rout which has decimated the market valuations of the PSUs.

Though, being aware of the problems faced by the PSU on account of commodity rout, finance ministry still issued an official letter to all Central PSUs asking them to pay either 30% of their net profits or 30% of the government's equity, whichever is higher. These are definitely double standards adopted by the government. On one hand, government wants to make the PSUs autonomous and efficient by reducing their stake from such PSUs. While on the other hand, government issues orders to pay hefty sums of dividend, citing reasons that the PSUs ought to chip in when the going gets tough for the 'majority shareholder'. This is the case of sheer hypocrisy.

Now is the time when the PSUs should actually ramp up their capital expenditure plans. Investments from private sector have halted. To add to the woes, there is no significant improvement in stalled project scenario. The quantum of stalled projects as a percentage of those under implementation remained at around 11.8%. Such projects have been stalled on account of various issues such as problems over land acquisition, lack of clearances, lack of funds, and raw material supply problems. In such a scenario pubic investments take an important role to drive the growth in the economy. Provided, such hefty dividends are paid, it puts pressure on the amount to be spent as capital expenditure. As per an article in Business Line, recent rout in global oil prices offers an opportunity for state owned oil exploration firms to acquire strategic oil assets overseas at bargain valuations.

Further, before declaring a dividend, companies need to assess the yield it earns while ploughing back profit. Provided, company earns more returns while ploughing back profit as compared to paying them as dividend, management should lay more stress on ploughing back profits rather than distributing the same as dividends. Therefore, payment of dividend should be purely based on commercial considerations.

The official letter of finance ministry goes on to suggest that government is facing problems with respect to maintaining the budgeted fiscal deficit levels. Fiscal deficit means excess of government expenditure over the revenues it earns. The outgo from Seventh Pay Commission coupled with One Rank One Pension (OROP) will further put pressure on the government accounts. In such a scenario, government needs to improve its revenues. This could possibly be the prime reason behind issuing an official letter to the PSUs for declaring dividends.

The need of the hour is to strike the right balance and ensure that there are no more hurdles in ramping up infrastructure investments. This would be critical in ensuring a sustained high Gross Domestic Product (GDP) growth for the country in the longer term.

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Nov 24, 2017 (Close)