Get more dividends from cash-rich PSUs instead of forceful divestment

With the top 10 PSUs sitting on a net cash of Rs1.4 trillion, Kotak Institutional Equities believes that the government can easily meet its fiscal targets without conducting ‘forced’ divestments

It is commonly known that there are ‘forced’ divestments of equity from public sector units (PSUs) simply to meet the fiscal targets of the government. Kotak Institutional Equities hence poses the question as to how to realise better value for public sector units. It suggests that the government (a) meet its divestment and fiscal targets for FY2014 through enhanced dividends from PSUs and (b) divest them later after improving their financials through a better policy framework.
The research firm adds that with the top 10 PSUs sitting on Rs1.4 trillion of net cash (as of 30 September 2012), the government can easily meet its fiscal targets without conducting ‘forced’ divestments.
The government should explore the option of higher dividends from cash-rich PSU companies. In particular, there is little logic for selling Coal India at depressed valuations when its stock price has come off due to the market’s expectation of an OFS (offer for sale) and coal pricing uncertainty. Coal India’s capex plan at Rs50 billion for FY2014BE is quite small relative to its humongous cash balance (Rs750 billion; end of FY2013E). More important, Coal India’s cash balance will keep on rising over the next few years despite its capex plans. Coal India can easily give Rs200 billion of dividends and dividend distribution tax (DDT) of Rs34 billion, with the government receiving Rs214 billion for its 90% holding.  
One of the reasons for the weak performance of PSUs over the past one to two months has been growing concerns about use of cash. The government intends to use the cash balance of the PSUs as a way to kick-start the capex cycle. PSUs seem to be investing sensibly based on their core plans. Dalal Street has fears of PSU companies being made to invest in non-core businesses; this is true for NMDC with concerns about it being forced to invest in downstream steel plants.
Kotak argues its case on better valuations for PSUs (where there are divestments) as: “We believe clarity on pricing of output of PSUs (coal, iron-ore and oil) will provide investors more comfort on the earnings of the PSUs. In some cases, it could also lead to a meaningful re-rating of multiples and divestment proceeds for the government. In the case of the oil sector, the government can provide clarity on the subsidy provisions for FY2013RE and FY2014BE, which may address the market’s concerns on the subsidy-sharing arrangement for FY2013. Similar, renewal of small periodic increases in diesel retail prices will restore the market’s confidence in the reforms process. We do not think the government can afford to give the wrong signals to overseas investors by temporarily suspending reforms due to political compulsions.”
Kotak feels that the oil and gas sector is a classic example. The government can raise prices of natural gas without any major impact on the critical fertilizer and power sectors. The government will recover around 90% of the increase in fertilizer subsidy arising from higher gas prices through higher income tax, dividends, DDT and royalty. The earnings of ONGC and OIL will increase meaningfully concurrently, allowing the government to divest stakes in them later at much higher prices. 


How Peyush Rai got his passport just when he was about to file an RTI

Peyush Rai, who had to endure the agony of the red tape, narrates his story in which he was asked to pay bribes and made to hop all over the place. He had applied for a passport online, serviced by a system maintained by TCS, but discovered that it online system isn’t free of corruption and rampant red tape

I have been hopping from pillar to post—from the Pune police commissioner’s office to the local police station to the regional passport office (RPO) and to the Passport Seva Kendra—several times, in the two months since I had applied for a passport online. I had also applied for the police clearance certificate (PCC) on 18 January 2013. Initially, I had I thought that I would get the PCC within a matter of hours just like my colleagues, but was shocked to know that I will have go through police verification process again.

After 15 days of applying for the PCC, I went to my local police station where the inspector told me to go to commissioner’s office if I wanted my file early. Therefore, I went to the commissioner’s office where a lady was in charge of the records of the area where I reside. I asked her for the PCC. Indeed, they had my PCC and would forward it to the local police station from whom I would get a call intimating receipt of the PCC. However, she told me that if I wanted a quicker process, I would have to pay. She told me, “Sir, you have to pay money over there”. At this moment, I thought it would cost between Rs100 to Rs500. I was shocked when I saw the final figure. She took a pencil and scribbled Rs1,500, with Rs500 for ACC, Rs500 for assistant commissioner of police (ACP) and Rs500 for the police inspector (PI).

I had told her that it was too much for simply forwarding a file and that I had to pay the local police station for verification anyhow. However, she told me that it was my problem how I dealt with the local police station. She further told me that if I paid the said amount, she would call the local police station and have it collected. Of course, I did not want to pay. So I came back and told her, “desh aap jaise logo ke karan barbaad ho gaya hai (the nation is in ruins because of people like you)”. When she heard that she laughed at me.

I returned home, with my hopes of getting the PCC all but dashed.

After 30 days of filing my PCC, I went to the local police station and asked for the file. They told me that they had it and I should collect it the next day at 3pm. The next day I reached police station at the stipulated time. I was made to sit on the bench outside of the verification room. After an hour, when everybody from the queue had finished their work, the police inspector called and asked me for my background and filed the report. He then told me, “de dejiye jitene aap ko lage (give what you feel is right)”. When I gave him Rs300 he refused. Then I gave him Rs500, he closed my file and asked me to come the next day for senior verification. When I went the next day, everything had gone smoothly.

Yet, after 30 days since verification, I did not get any call or SMS from the Passport Seva Kendra (PSK) to collect the PCC. The status still read: “PCC application is under review at Passport Seva Kendra" on the passport site. Therefore, I went to RPO on 12 March 2013. After standing in a queue for a good three long hours, I got the chance to meet the passport officer. She told me that they did not have information about the police verification in their database and that it is pending from the commissioner office, and therefore could not issue me the PCC.

I went to police commissioner’s office again and enquired about the police verification. The very same lady who had asked for the bribe earlier laughed at me. Apparently, she said that it had been sent it on 7 March 2013 and could not help any further. When I asked her to provide the details, she told me to get a letter, in writing, from the RPO. There was no guarantee that I would get anything from the RPO and waste another day doing nothing. I came back disenchanted.

I had complained and written emails to several officials at the ministry of external affairs (MEA). (; It was not until I was surfing Moneylife that I obtained the contact details of social activist and staunch RTI activist, Vinita Deshmukh. When I contacted her, she advised me to file an RTI. So, on 21 March 2013, I stood in a queue at the RPO. I called Vinita and she told me that I had to go to the first floor instead. Therefore, I went to the first floor and contacted the public information officer (PIO). An old woman arrived and suggested checking the status of the PCC before submitting the RTI. She found out that, the PCC was indeed in the RPO database and that there was no need to file an RTI. She instructed a peon to scan and upload the record, and told me to wait for five minutes. After just 10 minutes, I got my PCC. I am deeply grateful to Vinita Deshmukh for helping me, whom without her help I would not have achieved success.

Check the Peyush Rai story written by Vinita Deskmukh over here. : An RTI application gives Peyush Rai his passport even before submitting his plea

Check below for the entire Moneylife coverage on the Pune passport problems, including TCS role in making life for the ordinary person difficult:

Moneylife Impact: TCS swings into action to ease some difficulties faced by Pune passport applicants
TCS refuses to share in public, Master Service Agreement with MEA for its passport venture; says it will consult its legal cell
TCS assures smooth passport delivery system

Delay in getting your passport despite apt submission of documents—Use RTI

We are not bound to give your passport in the 45-day period, says India’s Chief Passport Officer

Passport troubles in Pune: One agent assures online appointments for Rs200

Pune Passport Grievance Forum files complaint with CIC; demands transparency from TCS and MEA

While Pune Regional Passport Officer assures easing procedures, TCS hides but cannot escape


Moneylife Foundation’s Women’s day event: “We must be careful that domestic violence doesn’t go the same way dowry has”

At Moneylife Foundation’s 4th annual Women’s Day event, felicitations to Jyoti Mhapsekar of...

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