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PSU cash hope for deficit target

Mumbai, Dec. 23: The Union government can bring down its fiscal deficit by as much as Rs 20,000 crore during this financial year by using the cash reserves of public sector units (PSUs).

Fiscal deficit, which is the difference between government receipts and spending, has been targeted at 4.8 per cent of the gross domestic product for this year. Though Union finance minister P. Chidambaram has repeatedly said that the target was a “red line” that would not be crossed, many experts remain sceptical.

Experts feel that with the economy passing through a slowdown (it will affect tax collections) and the divestment target not being met, achieving the deficit target may be difficult.

Recent data showed that the country’s fiscal deficit touched Rs 4.57 lakh crore, or 84.4 per cent of budget estimates, in the first seven months of the current fiscal, showing signs of stress in government finances.

There could, however, be some relief on this front from PSUs. According to a note from Crisil Research, the government could tap into the cash reserves of these entities and bring down fiscal deficit through dividends.

Huge corpus

By March 31, 2014, the top 20 PSUs by cash holding will have a corpus prior to dividend of Rs 160,000 crore.

Crisil added that these companies were comfortably placed to pay special dividends of Rs 27,000 crore over and above their normal dividend payouts, without impacting capital expenditure plans.

“Apart from the expected shortfall in tax revenue collections, the government may not be able to meet its divestment target. 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.

Crisil expects internal accruals and debt inflows (for project financing) to meet most of the capex requirements of PSUs this fiscal.

“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. 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 could, thus, be Rs 20,000 crore of the extra Rs 27,000 crore,’’ Agarwal said.

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