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Jaitley likely to bank on PSU dividends to meet fiscal deficit

As he grapples with a tough fiscal deficit target of 4.1 per cent in the face of an expected Rs 1.05 lakh crore tax revenue shortfall, Finance Minister Arun Jaitley may lean on the public sector companies to pay higher dividend to the government compared to last year. This, even as the Finance Ministry contemplates deep budget cuts across ministries and departments.

Business Standard has learnt from multiple sources that when Jaitley meets the heads of the state-owned companies for pre-budget consultations in the first week of January, he is likely to ask them to utilize the cash pile that they are sitting on to partly offset the expected tax receipts shortfall.
 

As reported earlier, at the end of March 2014, 54 major listed central government enterprises were sitting on cash and equivalents worth Rs 2 lakh crore, unchanged from a year ago. The amount is around a fifth of the cumulative investment in fixed assets by these companies. The bulk of this cash lies in bank deposits that earn little as interest. 
 

While the budget planners are enforcing cuts throughout various government departments, they are also looking at alternatives, something which Chief Economic Advisor Arvind Subramanian stated last week.
 

“At this stage, we feel confident that we can meet it (fiscal deficit target) with expenditure cuts. If that’s not going to be possible, we will look at other measures,” Subramanian had said in an interview with state broadcaster Doordarshan.

These measures could theoretically include higher proceeds from disinvestment, spectrum sales and PSU dividends. However, with just three months left in the fiscal, suddenly ramping up the disinvestment drive when just one company has been divested so far seems a tall ask. Officials say that the planners cannot depend on blockbuster spectrum sales, a factor which is not in government hands. Thus leaning on PSUs to pay special dividend is a more practical option.
 

“When push comes to shove, the Finance Minister can make the PSU chiefs pay more dividends, though the final decision has to be taken by these companies’ boards,” said a senior government official who did not wish to be named.
 

This practice isn’t new. Jaitley’s predecessor P Chidambaram too every year pressurized the big PSUs to cough up higher special dividends to the centre. Just last fiscal, as Chidambaram set about meeting a fiscal deficit target of 4.8 per cent while his disinvestment plan fell apart and tax revenues fell short, the expected proceeds from PSU dividends were revised upwards by as much as 44 per cent, from Rs 29,870.12 crore to Rs 43,074.58 crore.
 
He forced public sector behemoth Coal India to announce a special dividend payout of Rs 18,317.46 crore, its highest ever. Of this, Rs 16,485 crore went to the government. It also earned Rs 3,100 crore as dividend distribution tax from the company.

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