Squeezing PSUs

Demanding second interim dividend is bad optics

State-owned oil major Indian Oil Corporation (IOC) has declared it would pay a second interim dividend of over Rs 1,400 crore. The government owns just under 54 per cent in IOC, and will thus get over half that amount. The government has reportedly also demanded a second interim dividend from ONGC, which was initially unwilling to pay but has announced a board meeting in the next few days to pay what the government demands. ONGC had quite reasonably complained that it had just handed out an interim dividend, and therefore it was not as if it was swimming in cash; further, it argued it would need approval from the markets regulator — the Securities and Exchange Board of India (Sebi) — to pay a second interim dividend so soon. Both IOC and ONGC had accompanied their interim dividend payouts with share buybacks, which put money in the government’s pocket. Coal India Ltd has declared an interim dividend as well, which will give the government Rs 2,600 crore.

It is clear the government is pulling out all the stops in order to achieve its fiscal deficit target, which has been revised upwards to 3.4 per cent of gross domestic product in the ongoing financial year. But there is a big hole in the government’s collections of taxes, caused by the underperformance of revenue from the goods and services tax, or GST. The revised estimate for revenue from GST is Rs 1 trillion less than what was in the original Union Budget for this financial year. That is 16 per cent of the budgeted fiscal deficit and would, if not plugged, take the fiscal deficit up to nearer 4 per cent of GDP. Some of that is being sought to be made up by higher than expected direct tax collections. But the performance on that front is also not that encouraging, going by the latest advance tax numbers.

The government is clearly still short of expected revenue and is resorting to squeezing public sector companies over and over. Indeed, asking for a second interim dividend so soon after the first reflects poorly on the government. Aside from anything else, it looks like it did not even have a plan on how to make up for the revenue shortfall, which is not a good reflection on its fiscal management. Even if it is not to be blamed for its problematic estimate of GST revenue, given that the new indirect tax regime is still settling down and is unpredictable, what appears to be floundering for a few thousands of crores of rupees gives the impression of the absence of a plan. The finance ministry should be more open about its fiscal mathematics.

It is important to remember that listed public sector companies are not the government’s piggy bank. Listing them was supposed to impose greater market discipline on the government, which should respect the rights of minority shareholders and ensure independence for the company managements. That does not appear to be happening in this case. The oil majors, in particular, might well want to invest their cash rather than hand it over to the government to spend. That should be their decision. Forcing PSUs to pay more is counter-productive because it will reduce their efficiency and their value in the long run.