India’s government wants more dividends—and wants them fast.
In the last financial year, state-run companies paid a record ₹1.5 trillion ($17.31 billion) in dividends. Big names like ONGC and SBI were among the top payers. That’s impressive, considering public sector companies make up just 10% of India’s total market value but contributed nearly 25% of all dividends.
But now, New Delhi wants even more. According to a Bloomberg report, the government is asking state-owned enterprises (SOEs) to raise dividend payouts by 25% in the current fiscal year ending March 2026. And not just annually, quarterly payouts are being pushed.
What’s the Rush?
One reason is budget pressure. India’s tax income has been patchy, especially after recent income tax cuts. So, regular dividend flows can help plug the gaps.
Another reason? Asset sales. By making PSUs look like strong cash generators, the government can attract better value when it sells shares.
A finance ministry official even said that high payouts make PSUs more attractive for mutual funds. The logic: get more investors, push up stock prices, and fill the treasury.
But at What Cost?
Analysts think this strategy is short-sighted.
Many SOEs already have shrinking cash reserves. According to Fitch Ratings, eight big non-financial PSUs had ₹615 billion in free cash as of March 2024. That’s before paying dividends. With rising capital expenses—especially in energy and infrastructure—cash flows might turn negative by 2026.
For example, NTPC and Power Grid are investing heavily in long-term projects. Asking them to cough up more cash now could slow down their growth or push them into debt.
Policy Flip-Flop?
What’s more confusing is that just last November, the government relaxed the minimum dividend rule to the lower of 30% of net profit or 4% of net worth. Now it’s demanding more frequent and bigger payouts—a total reversal.
This kind of mixed messaging sends a poor signal to investors. It suggests that financial decisions in PSUs are driven more by politics than good business sense.
A Risky Game
State-run companies already trade at a discount because of fears of government interference. If the dividend pressure continues, it might scare off long-term investors even more.
In trying to boost short-term revenue, India risks hurting its own economic engine. As the saying goes—don’t milk the cow dry if you want milk tomorrow.
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