The central government could utilise huge cash reserves of 20 public sector units (PSUs) to cut fiscal deficit target by about Rs 20,000 crore given the challenges in meeting its disinvestment target, pointed out a report of Crisil Research.

“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,” said Mukesh Agarwal, President, CRISIL Research.

“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,” he added.

By March 31, 2014, the top 20 PSUs, by cash holding, will have an estimated pre-dividend corpus of around Rs 160,000 crore, and the companies are comfortably placed to pay special dividends of Rs 27,000 crore over and above their normal dividend pay-outs, without impacting capex plans.

The PSU list included Bharat Electronics, BHEL, BPCL, Coal India, Container Corporation Of India, Engineers India, GAIL, MMTC, MOIL, NALCO, NLC, NHPC, NMDC, NTPC, Oil India, ONGC, Power Grid Corporation, Shipping Corporation of India, SJVN and SAIL).

“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 Agarwal adding, “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 pay-out to the government could, thus, be Rs 20,000 crore (out of the extra Rs 27,000 crore).

Without incorporating the extra dividends (over and above what was paid last year), this year’s fiscal deficit is estimated at 5.2 per cent of the 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.

Sandeep Sabharwal, Senior Director, CRISIL Research, pointed out that the government could persuade companies with large cash reserves to announce special dividends or a buy-back programme instead of looking at cutting its spending to meet its fiscal deficit goal. Fresh spending cuts could create growth hurdles for the already slowing economy, he stated.

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