Reducing Fiscal deficit: Coal India leads the way with high dividends

State-run companies need to help the Indian government to overcome fiscal deficit and still make an investment in a profitable venture

Regular readers of Moneylife know that Coal India is the world's largest coal producer, owning most of the coalfields in the country, and producing about 485 million tonnes of coal, with a target to reach 492 million tonnes this fiscal, though this is said to be a difficult proposition because of the troubles they experienced in Talcher.


Coal India is one of the few government-owned companies, where the private shareholding is less than 20%, and it has free cash reserves of over Rs62,000 crore! Last year, it distributed a dividend payout of Rs14 per share, on a face value of Rs10, and this year, its interim dividend was expected to be higher than this! At the same time, due to the government pressure, which has been trying to raise Rs40,000 crore to offset the fiscal deficit, a plan was afoot to go in for disinvestment.


Due to strong opposition from the labour unions, the disinvestment had to be shelved. The best alternative was to increase the dividend payout substantially! This is precisely what Coal India's Board did, this week, on Sankranthi day, by approving an interim dividend of Rs29 per share. The market price of this share was Rs250 on 29 August 2013, and it had closed at Rs328 on 30 May 2013. The share price had hovered around the Rs270 range before reaching the Rs292 range this week, just after the announcement of the dividend. In fact, it had planned to hold the Board meeting to mull the issue in February 2014, but due to the urgency, it was brought up to January 2014, and has cheered up the shareholders.


This interim dividend payment will cover Rs18,317.46 crore for the year ending 31 March 2014, as against Rs8,847 paid out last year. In addition, a sum of Rs3,100 crore will also accrue to the government in the form of dividend distribution tax, all of which will help in reducing the fiscal deficit.


As a matter of interest, government disposal of Axis Bank share holding has also brought relief. It is still possible for the final dividend to be "reasonable" when announced, but that would naturally go into the next year's account.


What can one do to take advantage of the dividend distributed by government-owned companies? To start with, they need to take the advice of their own financial consultants in choosing the companies to buy shares and be willing to hold out for a short duration only.


There are several such companies on the block that they may adopt this procedure to give substantial interim dividends. Take for instance, NMDC (National Mineral Development Corporation); the share prices (CMP – current market price) has been ruling around Rs140-Rs142. NMDC is one of the few companies operating quietly in carrying out its iron ore mining operations, and it may be "persuaded" to give out a good dividend shortly. In fact, if there is no pressure and opposition from the Unions, they may also go in for a buy-back.


Other companies include ONGC, BHEL, EIL, OIL, MOIL and GAIL. A quick look at their balance sheets and free cash reserves will enable the reader to do some homework for self-satisfaction before embarking on this purchase, which must include expert advice from one's own consultant. Some other companies may also find a place in this list!


On general thoughts on the subject, why not these companies think in terms of buy-back programmes from the government only, and not necessarily the shareholding by private investors? They can also reward the employees by making the offer to sell the shares with conditions of no-sale for a minimum of three years?


They can also offer bonus shares to private investors, and, in lieu of this, to the government they can as well pay out the value of this allotment by cash, so that the government shareholding is reduced? Also, there has been talk of using pension funds being made "free" for investment. Why not make sale of the shares—government-owned blocks—to pension funds only, so that the public can get benefited?


Readers can also come out with their recommendations; we need to think out of the box, help the government to overcome the fiscal deficit, and still make investment a profitable venture!

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)



sabse bada swadeshi

3 years ago

There is no one to take care for indian economy. No one to keep its accounts. At personal level we are worried about small amounts of money but at national level we are not worried about fiscal deficit of Rs 5 lac crore , trade deficit of Rs 10 lac crore and undue inflation like fee of Rs 5 crore for m.d. radiodianosis to become a doctor to do simple tests of x ray and ultrasonography.We are facing fiscal deficit but are only interested in subsidized stuffs and to promote subsidy overlooking better alternatives , facing trade defict but only want to use forex needing stuffs , commodities and services hating their indian substitutes . We are facing inflation but want to use and promote costly hating cheaper and better . Who will help the nation . Me , the sabse bada swadeshi. Please read my comments on internet.

Dr Anantha K Ramdas

3 years ago

Thanks for your comments, Mr Vinay. Personally, I feel in good old days it was necessary for government to participate in order to create trust and
confidence. And they may continue to do so, when such projects involve strategic importance and national security.

However, in my opinion, the Government must set a limit for withdrawl of its capital, once the venture starts "earning" profits and is able pay dividends.

In fact, in a generalised way, such projects should be able to break even in 3 to a maximum of 5 years, and the government investment should be returned thereafter, in the next 5 years, @ 20% per year. Call it buy-back period or whatever, and once this process is complete, it should be left to fend itself and perform like a private enterprise!



In Reply to Dr Anantha K Ramdas 3 years ago

That is a very good way to privatise govt companies. If only our policy makers thought like you! :)


3 years ago

If you look at it properly, these quick fixes are actually bad for the country. This is just treating the symptoms but not the underlying disease.

Milking the PSUs just sweeps the massive mis-governance under the rug.

What will the govt do next quarter, or the next year to fix the actual problem causing these deficits? What about the harmful sinkholes like employment schemes, free food, irrational and random policy decisions etc.?

In fact, the agricultural backbone of the country in villages is being systematically destroyed by massive money sinkhole schemes like AADHAAR, MNREGA (villagers paid to do nothing/get drunk - means no farm work), practically free food - monthly 35kg of rice (at Rs. 1), pulses, (even chilli powder!), soaps, etc for free. Basically, villagers are being paid to do nothing and all the basic necessities are being given for free. What's the incentive to work, to grow food?

Also to be highlighted is the lack of any say by the company directors in deciding any of this. Govt proposes, PSU disposes.

When shit hits the fan, all these PSUs (think especially LIC - which has been milked crazy) will need massive bailouts by the taxpayers.

Privacy tools: How to safely browse the web

In the course of writing her book, Dragnet Nation, ProPublica reporter Julia Angwin tried various strategies to protect her privacy. In this blog post, she distills the lessons from her privacy experiments into useful tips for readers.

One of the easiest and simplest things you can do to protect your privacy is to be a smarter Web browser.

This is surprisingly difficult because most popular Web browsing software is set up to allow users to be tracked by default. The reason is simple economics – you don’t pay for Web browsing software, so the companies that make it have to find other ways to make money.

The most egregious example of this conflict came in 2008 when Microsoft’s advertising executives helped quash a plan by the engineers to build better privacy protections into the Internet Explorer 8 Web browser. Microsoft has since added additional protections – but they are not turned on by default. The situation is no better at Google, whose Chrome Web browser has “buried and discouraged” the “Do Not Track” button, and is pioneering the use of new tracking technology that cannot be blocked. And it’s worth noting that the other big Web browser maker, Mozilla Corp., receives 85 percent of its revenues (PDF) from its agreement to make Google the default search engine on Firefox.

Even worse, many of the tools that Web browsers offer to protect privacy are not effective. Tracking companies have refused to honor the “Do Not Track” button. And Google Chrome’s “Incognito” mode and Internet Explorer’s “InPrivate Browsing” mode won’t protect you from being tracked. Those settings simply prevent other people who use your Web browser after you to see where you’ve been online.

And so, in order to prevent the most common types of tracking, I ended up loading up my Web browser – Mozilla’s Firefox – with a bunch of extra software. It sounds like a lot of work, but most of this software can be installed in a few minutes. Here’s what I used:

I installed “HTTPS Everywhere,” created by the Electronic Frontier Foundation and the Tor Project. This tool forces your Web browser to use encrypted Internet connections to any website that will allow it. This prevents hackers – and the National Security Agency – from eavesdropping on your Internet connections.

I also installed Disconnect, a program created by former Google engineer Brian Kennish, which blocks advertisers and social networks, such as Facebook and Twitter, from tracking which websites you visit.

And finally I set my default search engine to be DuckDuckGo, a search engine that doesn’t store any of the information that is automatically transmitted by your computer — the IP address and other digital footprints — so DuckDuckGo has no way to link your search queries to you. That means DuckDuckGo won’t auto-complete your search queries based on your previous searches or based on your physical location, as Google does. So you’ll have to be a little smarter about your searches, and remember to bookmark the pages that you visit often, to save time.

After browsing with my ungainly setup for nearly a year, I found a Web browser that had all the features I wanted built in — called WhiteHat Aviator. It has built-in HTTPS Everywhere, it doesn’t retain or sell your online activity, and it uses Disconnect to block trackers from advertisers and social media companies. Its default search engine is DuckDuckGo.

It’s built by a computer security firm called WhiteHat Security, but it hasn’t been audited by any computer security experts yet, as far as I can tell. So use it at your own risk (and currently you can only use it on the Mac OSX operating system). But I’ve been using it for a few months, and after some bugginess in the beginning, I’ve started to enjoy the unusual feeling of having privacy as a default setting.



Sensex, Nifty may move up further: Wednesday closing report

Nifty may continue to rally if it manages to keep itself above 6,280

On Tuesday we mentioned that both BSE Sensex and NSE Nifty may try to move up again though Nifty’s resistance at 6,300-6,315 is quite strong. On Wednesday, Nifty hit this resistance in the morning, went down sharply and then rallied again to cross this resistance. The market has some more steam left as long as Nifty stays above 6,280.


A strong rally in the US on Tuesday and Asian markets today, plus World Bank raising its global growth forecasts puts the bulls back in saddle. The Sensex closed at it highest since 9 December 2013 while the Nifty closed at its highest since 10 December 2013. The Sensex opened at 21,091 hitting its intra day low almost at the same level. It reached 21,303 and closed at 21,289 (up 257 points or 1.22%) while the Nifty opened at 6,266 and hit a low of 6,265. The Nifty moved up to hit the high of 6,325 and closed at 6,321 (up 79 points or 1.27%). The NSE recorded a higher volume of 59.43 crore shares.


Except for Media (down 0.42%) all the other indices on the NSE closed in the positive. The top five gainers were PSU Bank (1.88%); Finance (1.84%); Bank Nifty (1.61%); Infra (1.54%) and Dividend Opportunities (1.36%).


Of the 50 stocks on the Nifty, 45 ended in the green. The top five gainers were UltraTech Cement (3.76%); Bank of Baroda (3.63%); Sesa Sterlite (2.96%); N M D C (2.78%) and PNB (2.64%). The only five losers were Ranbaxy (2.30%); Cairn (1.35%); Lupin (0.70%); B P C L (0.29%) and Sun Pharma (0.27%).


Of the 1,510 companies on the NSE, 751 companies closed in the positive, 675 companies closed in the negative, 84 companies closed flat.


The wholesale price index climbed an annual 6.16% last month, its slowest pace since July 2013. The pace of gains in December was tempered by a softening in vegetable prices that fell nearly 30% from November, bringing down overall food inflation for the month to 13.68% from 19.93% a month ago.


India's fiscal deficit will be contained at 4.8% of the gross domestic product (GDP) in the current fiscal year ending March, the finance minister P Chidambaram  said, hinting at possible cuts in government spending. The US indices closed in the positive. US retail sales increased 0.2% after a 0.4% advance in November that was smaller than previously reported, Commerce Department figures showed in Washington.


The World Bank raised its global growth forecasts as the easing of austerity policies in advanced economies supports their recovery, boosting prospects for developing markets' exports. The bank sees the world economy expanding 3.2% this year, compared with a June projection of 3% and up from 2.4% in 2013. The forecast for the richest nations was raised to 2.2% from 2%. Part of the increase reflects improvement in the 18-country euro area, with the US ahead of developed peers, growing twice as fast as Japan. At the same time, the withdrawal of monetary stimulus in the US may raise market interest rates, hurting poorer countries as investors return to assets such as Treasuries, according to the bank.


Except for Shanghai Composite (down 0.17%) and KLSE Composite (down 0.60%) all the other Asian indices closed in the positive. Nikkei 225 (up 2.50%) was the top gainer.


European indices were trading in the green while the US Futures too were trading higher.


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