In­dia seeks hefty div­i­dends from state firms

The Gulf Today - Business - - UAE & REGION -

NEW DELHI: In­dia is de­mand­ing mil­lions of dol­lars in div­i­dends from 12 re­luc­tant state com­pa­nies to make up for an ex­pected tax rev­enue short­fall this fis­cal year, as a slump in eco­nomic growth risks New Delhi over­shoot­ing its fis­cal deficit tar­get.

The de­mand has been made fol­low­ing a fi­nance min­istry as­sess­ment on Oct.25 of the fi­nan­cial health of 14 state com­pa­nies, in­clud­ing top miner NMDC Ltd and trad­ing firm MMTC Ltd, ac­cord­ing to a gov­ern­ment doc­u­ment re­viewed by Reuters.

The min­istry asked 12 of the com­pa­nies to pay­out be­tween 30 per cent and as much as 100 per cent of their 2016/17 or 2017/18 net profit in div­i­dends, share buy­backs or bonus shares. The other two com­pa­nies were ex­empted.

All state com­pa­nies eval­u­ated by the gov­ern­ment sought ex­emp­tions. The fi­nance min­istry, NMDC and MMTC did not re­ply to Reuters emails seek­ing com­ment.

In­dia’s fed­eral bud­get is un­der pres­sure this year fol­low­ing an un­ex­pected slump in eco­nomic growth, which slipped to its low­est level in three years in the three-months end­ing June, the first quar­ter of the 2017/18 fis­cal year.

As of Septem­ber, the half-way mark for the fis­cal year, the bud­get deficit had reached 4.99 tril­lion ru­pees or more than 91 per cent of its full-year tar­get.

Sur­jit Bhalla, a mem­ber of the prime min­is­ter’s eco­nomic ad­vi­sory coun­cil, told Reuters in an in­ter­view in Oc­to­ber that the gov­ern­ment wanted to stick with a bud­get deficit tar­get of 3.2 per cent.

The gov­ern­ment’s rev­enues have also been hit by a sharply lower div­i­dend from the cen­tral bank.

DE­MANDS

The as­sess­ment by the fi­nance min­istry did not spec­ify the com­bined amount of pay­outs ex­pected of the 12 com­pa­nies.

But New Delhi has bud­geted $21.86 bil­lion in pay­outs from all state com­pa­nies this fis­cal year, slightly down on the pre­vi­ous fis­cal year. In­dian busi­nesses have been dis­rupted by last year’s shock ban on high-value notes and the roll-out of a new na­tional goods and ser­vices tax.

In­dian state firms will only fi­nalise their full div­i­dend pay­outs for the cur­rent 2017/18 fis­cal year in Septem­ber next year.

NMDC has told the fi­nance min­istry it would only be able to pay less than half of the 25 bil­lion ru­pees in div­i­dend pay­outs that the gov­ern­ment is de­mand­ing for the cur­rent fis­cal year of 2017/18, a se­nior com­pany ex­ec­u­tive said. He de­clined to be iden­ti­fied be­cause of the sen­si­tiv­ity of the mat­ter.

Three se­nior gov­ern­ment of­fi­cials said NMDC is re­luc­tant to com­ply with the gov­ern­ment’s de­mands be­cause it al­ready has to pay a 30-bil­lion-ru­pee penalty to the east­ern state of Odisha for il­le­gal min­ing and needs cash for cap­i­tal in­vest­ments.

The se­nior com­pany ex­ec­u­tive said a pay­ment of 25 bil­lion ru­pees to the gov­ern­ment would mean pay­ing out a fur­ther 35 bil­lion ru­pees to other share­hold­ers in the com­pany.

“Where will the money come from?” the source said.

That would com­pare with NMDC’S pro­jected 2017/18 net profit, based on Thom­son Reuters Smartes­ti­mate data, of 37.7 bil­lion ru­pees.

NMDC has also been asked to is­sue bonus shares be­fore Sept. 30, 2018, the doc­u­ment showed.

The gov­ern­ment has asked MMTC to pay 300 mil­lion ru­pees in div­i­dends and is­sue bonus shares for 2016/17. The firm is seek­ing ex­emp­tions from both.

“The com­mit­tee noted that MMTC’S de­fined re­serves and sur­plus is more than 10 times of its paid-up eq­uity share cap­i­tal,” the doc­u­ment said.

Three un­listed com­pa­nies from de­fence and rail­ways were asked to pay a max­i­mum 100 per cent of their net profit as div­i­dend, the doc­u­ment showed.

A. Prasanna, an econ­o­mist with ICICI Se­cu­ri­ties Pri­mary Deal­er­ship in Mumbai, said the gov­ern­ment had the right to seek higher div­i­dends from cash-rich com­pa­nies as long as the money was sit­ting idle.

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