Government's Double Standard on PSUs

Wed, 13 Jan Pre-Open

   Previous Close   

   09:30 am   

   11:30 am   

   01:30 pm   

   Closing   

A year back, government had set an ambitious target to raise Rs 695 billion through disinvestment in FY16, despite missing the previous year's target by more than half. The disinvestment was aimed at making the Public Sector Undertakings (PSU) more competent and autonomous as compared to the private sector enterprise. Assessing the current situation, disinvestment seems impossible due to the global commodity rout which has decimated the market valuations of the PSUs.

Though, being aware of the problems faced by the PSU on account of commodity rout, finance ministry still issued an official letter to all Central PSUs asking them to pay either 30% of their net profits or 30% of the government's equity, whichever is higher. These are definitely double standards adopted by the government. On one hand, government wants to make the PSUs autonomous and efficient by reducing their stake from such PSUs. While on the other hand, government issues orders to pay hefty sums of dividend, citing reasons that the PSUs ought to chip in when the going gets tough for the 'majority shareholder'. This is the case of sheer hypocrisy.

Now is the time when the PSUs should actually ramp up their capital expenditure plans. Investments from private sector have halted. To add to the woes, there is no significant improvement in stalled project scenario. The quantum of stalled projects as a percentage of those under implementation remained at around 11.8%. Such projects have been stalled on account of various issues such as problems over land acquisition, lack of clearances, lack of funds, and raw material supply problems. In such a scenario pubic investments take an important role to drive the growth in the economy. Provided, such hefty dividends are paid, it puts pressure on the amount to be spent as capital expenditure. As per an article in Business Line, recent rout in global oil prices offers an opportunity for state owned oil exploration firms to acquire strategic oil assets overseas at bargain valuations.

Further, before declaring a dividend, companies need to assess the yield it earns while ploughing back profit. Provided, company earns more returns while ploughing back profit as compared to paying them as dividend, management should lay more stress on ploughing back profits rather than distributing the same as dividends. Therefore, payment of dividend should be purely based on commercial considerations.

The official letter of finance ministry goes on to suggest that government is facing problems with respect to maintaining the budgeted fiscal deficit levels. Fiscal deficit means excess of government expenditure over the revenues it earns. The outgo from Seventh Pay Commission coupled with One Rank One Pension (OROP) will further put pressure on the government accounts. In such a scenario, government needs to improve its revenues. This could possibly be the prime reason behind issuing an official letter to the PSUs for declaring dividends.

The need of the hour is to strike the right balance and ensure that there are no more hurdles in ramping up infrastructure investments. This would be critical in ensuring a sustained high Gross Domestic Product (GDP) growth for the country in the longer term.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary

Top Gainers TodayTop Gainers over 1-WeekTop Gainers over 1-MonthTop Gainers over 1-YearTop Gainers over 3-YrsTop Gainers over 5-YrsTop Losers TodayTop Losers over 1-WeekTop Losers over 1-MonthTop Losers over 1-YearTop Losers over 3-YrsTop Losers over 5-YrsOnly BuyersOnly SellersMost Active StocksMost Popular Stocks52 Week High Stocks52 Week Low Stocks

INDICESBSE (Rs 0 to 1)BSE (Rs 1 to 2)BSE (Rs 2 to 4)BSE (Rs 4 to 10)BSE (Rs 10 to 20)BSE (Above Rs 20)BSE - AllBSE-30BSE-100BSE-200BSE-500BSE AutoBSE BankexBSE Capital GoodsBSE Consumer DurablesBSE FMCGBSE HealthcareBSE ITBSE MetalBSE Oil & GasBSE PSUBSE TeckBSE RealtyBSE PowerBSE A GroupBSE B GroupBSE Mid-CapBSE Small-CapBSE Basic MaterialsBSE Consumer DiscretionaryBSE IndustrialsBSE UtilitiesBSE Sensex 50BSE Sensex Next 50BSE Bharat 22BSE 150 MidCapBSE 250 SmallCapBSE 250 LargeMidCapBSE 400 MidSmallCapBSE AllCapBSE LargeCapBSE SmallCap SelectBSE 100 LargeCap TMCBSE InfraBSE ManufacturingBSE CPSEBSE Private BankBSE Diversified FinancialsBSE MomentumBSE Low VolatilityBSE QualityBSE Enhanced ValueBSE Divident StabilityS&P BSE IPOBSE SMEIPOBSE 100 ESGBSE CarbonexBSE GreenexNSE (Rs 0 to 10)NSE (Rs 10 to 20)NSE (Above Rs 20)NSE - AllNSE-50NSE ITNSE Nifty Midcap 50NSE JR. NiftyNSE Bank NiftyNIFTY Next 50NIFTY 100NIFTY 200NIFTY 500NIFTY MidCap 100NIFTY SmallCap 250NIFTY SmallCap 50NIFTY SmallCap 100NIFTY LargeMidCap 250NIFTY MidSmallCap 400NIFTY AutoNIFTY Consumer DurablesNIFTY FinanceNIFTY FMCGNIFTY MediaNIFTY MetalNIFTY PharmaNIFTY Private BankNIFTY PSU BankNIFTY RealtyNIFTY Oil & GasNIFTY SME EmergeNIFTY CommoditiesNIFTY CPSENIFTY EnergyNIFTY India ConsumptionNIFTY InfraNIFTY MNCNIFTY PSENIFTY Serv SectorNIFTY100 Liquid 15NIFTY Midcap Liquid 15NIFTY Midcap 150 Quality 50NIFTY50 Equal WeightNIFTY100 Equal WeightNIFTY100 Low Volatility 30NIFTY100 Alpha 30NIFTY Alpha 50NIFTY Dividend Opportunities 50NIFTY High Beta 50NIFTY Low Volatility 50NIFTY200 Quality 30NIFTY 500 Value 50NIFTY 100 Quality 30SECTORSAgricultureAirlinesAluminiumAsset Management CompaniesAutomobilesAuto AncillariesBanks (Private)Banks (PSU)BankingCementChemicalsDefenceDiagnosticsDronesEngineeringElectric VehicleElectric Vehicle BatteryEnergy SourcesESGEthanolFertilizersFintechFMCGFoodGreen HydrogenHotelsInfrastructureInsuranceInvestment and FinanceInvITIT (Large)IT (Others)LogisticsMediaMetalMiningIndia's Big Tech StocksIndian PharmaMNC PharmaPSUPaintPaperPlasticPowerRating AgenciesReal EstateREITsRenewable EnergyRetailingSemiconductorShippingSteelSugarSupply ChainTelecomTextilesTravel Support Services

10 results 25 results 50 results 100 results All results

Indian Share Market Update: Top Gainers and Losers