India’s government asked state-run companies to pay higher dividends to help narrow the budget deficit as slowing growth threatens to erode revenue, a finance ministry official with direct knowledge of the matter said.
Ministry officials and the chiefs of state companies met in New Delhi yesterday to discuss investment plans and their ability to pay higher dividends, said the person, who asked not to be identified, citing government policy.
Failure to raise money from stake sales is forcing Finance Minister Pranab Mukherjee to explore other ways to fund the government’s spending on roads, hospitals, ports and power stations. He said Jan. 11 it will be “difficult” for the government to achieve its fiscal deficit target. India’s gross domestic product expanded 6.9 percent in the three months ended Sept. 30, the slowest pace in more than two years.
“The government is resorting to temporary measures to get control over the budget deficit,” said Dharmakirti Joshi, Mumbai-based chief economist at Crisil Ltd., the local unit of Standard & Poor’s. “What India needs to do is take durable and credible steps to cut the deficit.”
Joshi expects the budget deficit to widen to 5.5 percent of the gross domestic product in the current financial year compared with the budgeted target of 4.6 percent. India’s budget deficit reached 85.6 percent of the annual target in the eight months through November. The deficit was 3.53 trillion rupees ($69 billion) in the period, according to the Controller General of Accounts.
D.S. Malik, spokesman for the finance ministry, wasn’t available for comment in two calls made to his office.
“We plan to pay a higher dividend than last year after consultations with the board,” said B.L. Bagra, chairman of National Aluminium Co., who attended the meeting yesterday. The government owns 87.2 percent of the company.
The Bombay Stock Exchange’s BSE-PSU Index has climbed 11 percent this year on speculation of higher dividend payments, while the benchmark Sensitive Index has risen 4 percent. National Aluminium gained 3.8 percent to 59 rupees at 10:09 a.m. in Mumbai trading and Coal India Ltd. rose 2.4 percent.
National Aluminium had 44.1 billion rupees ($857 million) of cash as of Sept. 30, according to data compiled by Bloomberg.
Coal India, the world’s biggest producer of the fuel, had 550 billion rupees of cash as of Sept. 30. It plans to use the money to increase output and pay more dividend, Chairman Nirmal Chandra Jha said on Sept. 22.
Slowing economic growth is hurting revenue. Tax receipts rose 48.2 percent in the April-November period, slower than the 55.5 percent gain a year earlier. The government on Dec. 30 increased its planned borrowings to a record 5.1 trillion rupees in the year ending March, compared with the budgeted target of 4.17 trillion rupees.
Oil India Ltd., the second-biggest state-owned explorer, announced Dec. 21 it would pay a mid-year dividend of 25 rupees a share, its highest payout ever. NTPC Ltd., the nation’s biggest electricity generator, will consider payment of a mid-year dividend at a board meeting on Jan. 27, according to a regulatory statement yesterday.
A 25 percent drop in the benchmark Sensitive Index last year prompted Mukherjee to delay selling shares of Oil & Natural Gas Corp., the country’s biggest energy explorer, Steel Authority of India Ltd. and Hindustan Copper Ltd. He has raised 11.44 billion rupees from asset sales this year, or 3 percent of the target, according to data provided by the Department of Disinvestment.
The government has also examined asking companies to buy back its shares and create a fund manager that will purchase the state’s shares in companies.