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Informist, Tuesday, Apr. 29, 2025

 

By Sagar Sen

 

NEW DELHI – In a move to nudge public sector companies towards efficient cash management, the government will now ask these companies to pay higher dividend unless they have concrete plans to deploy cash, a senior finance ministry official told Informist on condition of anonymity. According to current norms, PSUs need to pay minimum annual dividend of 30% of net profit or 4% of their net worth, whichever is higher.

 

"We revised the norms last year and now there is greater focus on efficient cash management of these companies. Companies that do not have a clear capital expenditure plan or viable projects are being asked to come up with concrete plans otherwise pay dividends to shareholders," the official said.

 

Currently, there is no plan to tweak the dividend policy, the official said. However, there will be a nudge to these public sector companies to not sit on idle cash, the official said.

 

The Budget for 2025-26 (Apr-Mar) projected dividends from public sector enterprises at INR 690 billion, up 25.5% from revised estimate for FY25. "Though it is too early to project how much impact this will have on the dividend estimates. It may be in the region of 25%-30%," another finance ministry official said. A back of the envelope calculation indicates higher dividend from these companies may amount to INR 172 billion-INR 210 billion.

 

According to economists, if nominal GDP growth is 50 basis points lower than 10.1% projected in the Budget for FY26, gross tax collection could be lower by around INR 200 billion. The Budget for current fiscal has projected the gross tax collections at INR 42.70 trillion.

 

The current guideline stipulates central public sector companies should pay higher dividend taking into account relevant factors such as profitability, capex requirements with due leveraging, cash reserves, and net worth. It also says that payment of dividend at regular intervals helps revive investor interest and improve market sentiment for stocks of these companies, as regular dividend attracts investors to PSU stocks and retain these in hope of future dividends. These norms, however, do not apply to public sector banks and public sector insurance companies.

 

Recently, few PSUs had approached the finance ministry with plans for deploying funds to allied activities. However, these companies were told to rework those plans as these did not seem plausible, the second official said. "Unless we are convinced that the plans are genuine and are feasible for medium to long-term we would not settle for lower dividend," the second official said.

 

The latest move assumes significance as the Department of Investment and Public Asset Management Secretary Arunish Chawla had earlier this month said government-owned companies, whose market capitalisation was only 10% of the total market cap of all listed companies, had paid INR 1.50 trillion aggregate dividend in FY25, which was 25% of the total dividend paid by all listed companies. Out of the aggregate dividend of INR 1.50 trillion, the government had received a record INR 740.17 billion in FY25, 16% higher than in the previous year.

 

Buoyed by the robust dividend income it had received in FY25, the finance ministry also plans to nudge mutual fund managers to include PSU stocks in their portfolios, Chawla had said. This would encourage retail investors and minority shareholders to deploy their savings in such funds.  End

 

Edited by Akul Nishant Akhoury

 

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