The cash-strapped Modi government has sent out an advisory to public sector units asking them to pay higher dividends and on a quarterly basis. The move is seen as an attempt to shore up its finances.

The government has told state-owned firms not to go by the rule book and pay only the bare minimum dividend, but to work on increasing payouts.
The letter, sent by the department of investment and public asset management (DIPAM) to the chief executives of all CPSEs, said the move would help the government get predictable and periodic payouts before the budget estimates are firmed up.

“The CPSEs, especially companies that pay relatively higher dividends, may consider paying interim dividends every quarter after their quarterly results. Other CPSEs may pay interim dividends on a half-yearly basis,” the advisory said.

“Many CPSEs usually only pay a minimum dividend as set in the guidelines. They are advised to pay higher dividends taking into account relevant factors such as profitability, capex requirements with due leveraging, cash or reserves and net worth,” the advisory said.

DIPAM secretary Tuhin Kanta Pandey told a television channel: “30 per cent should not be treated as a maximum kind of a thing, it is minimum so they should strive to give more dividends. Frequency of the interim dividend could be higher and 90 per cent of the projected dividend should be paid as an interim dividend. This will ensure that the shareholders can keep the money as dividend as they go.”

Most PSUs pay interim dividend in February or March.

He added “dividend should be taken into consideration all factors including capex requirements, including the requirements of profitability, etc. whatever it is, it should be actually well distributed over the year.”

DIPAM advised that only CPSEs without any “possibility” of dividend payout, according to the minimum prescribed norms, can pay interim dividend annually during October or November each year based on projected profit after tax, with the declaration of second quarterly results.

“A consistent dividend policy would also help revive investor interest and improve market sentiment for CPSE stocks, as practicability in regular or quarterly dividend payment would attract quality investors to CPSE stocks and retain them in the hope of a future dividend,” the DIPAM’s fresh advisory said.

Most state-owned firms pay interim dividend in February or March of a year at present. “Such bunching of interim dividend payouts by CPSEs in February-March may compete with their cash availability for year-end payments to suppliers as well as towards advance tax,” the DIPAM explained the rationale behind the move in the advisory.

In the budget 2020, the government had estimated receipts from dividends and profits at Rs 1.55 lakh crore against the revised estimates for the past year of Rs 1.99 lakh crore. Clearly, the centre is stepping on the management to cough up sorely-needed cash.