"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 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.
The rating agency said it expects the top 20 PSUs, by cash holding, will have an estimated pre-dividend corpus of around Rs 160,000 crore by March 31, 2014.
"We estimate, these companies are well placed to distribute 40 per cent of the corpus (Rs 64,000 crore) as dividend without impacting growth plans," said Crisil in a statement.
That is Rs 27,000 crore more than the Rs 37,000 crore dividend paid by these companies last fiscal. In proportion to the shareholding, the excess payout to the government could, thus, be Rs 20,000 crore (out of the extra Rs 27,000 crore).
Crisil said that without incorporating the extra dividends (over and above what was paid last year), this year's fiscal deficit at 5.2% of the gross domestic product (GDP). The Rs 20,000 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 per cent.
Sabharwal, Senior Director, CRISIL Research added that "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."
Dion Global Solutions Ltd.