According to CRISIL, top 20 PSUs with a pre-dividend corpus of Rs1.6 lakh crore, can comfortably pay special dividends of Rs27,000 crore and above to heldp reduce fiscal deficit by 20 basis points

CRISIL Research, has estimated that the Indian government can reduce its fiscal deficit by as much as Rs20,000 crore this fiscal by using cash reserves of public sector units (PSUs).

“Apart from the expected shortfall in tax revenue collections, the union government may not be able to meet its disinvestment target, which could result in it falling short of the budgeted fiscal deficit. In such a scenario, the cash reserves of PSUs provide an alternative source of income. However, a lot will depend on whether the government is able to convince the companies to part with the surplus cash as a special dividend,” said Mukesh Agarwal, president, CRISIL Research.

These top 20 PSUs include Bharat Electronics Ltd, BHEL, BPCL, Coal India Ltd, Container Corp Of India Ltd, Engineers India Ltd, GAIL (India) Ltd, MMTC Ltd, MOIL Ltd, NALCO, Neyveli Lignite Corporation Ltd, NHPC Ltd, NMDC Ltd, NTPC Ltd, Oil India Ltd, ONGC Ltd, Power Grid Corp of India Ltd, Shipping Corp of India, SJVN Ltd and Steel Authority of India Ltd.

By 31 March 2014, the top 20 PSUs by cash holding, will have an estimated pre-dividend corpus of around Rs1.60 lakh crore. At the end of the last fiscal, the total cash holding with these 20 PSUs was Rs1.70 lakh crore. CRISIL said its analysis shows these companies are comfortably placed to pay special dividends of Rs27,000 crore over and above their normal dividend payouts, without impacting capex plans.

CRISIL said, "We estimate, these companies are well placed to distribute 40% of the corpus (Rs64,000 crore) as dividend without impacting growth plans. That is Rs27,000 crore more than the Rs37,000 crore  dividend paid by these companies  last fiscal. In proportion to the shareholding, the excess payout to the government could, thus, be Rs20,000 crore out of the extra Rs27,000 crore."

“The government will have to cut spending to meet its fiscal deficit goal. But this may not augur well for an economy that has slowed down and fresh spending cuts can also create growth hurdles. Hence, the government could persuade companies with large cash reserves to announce special dividends or a buyback programme,” said Sandeep Sabharwal, Senior Director, CRISIL Research.

Without incorporating the extra dividends over and above what was paid last year, CRISIL said it expects this year’s fiscal deficit at 5.2% of the gross domestic product (GDP). The Rs20,000 crore  additional income  would approximate 20 basis points of the fiscal deficit, which can help the government reach closer to its stated fiscal deficit target of 4.8%, the research note said.