Why in news?
The finance ministry reported a sharp increase in dividend income from non‑banking public sector undertakings (PSUs) during the first quarter of fiscal year 2025–26. This uptick has helped the government manage its budget deficit.
Background
PSUs are companies in which the government holds a majority stake. They operate in sectors such as mining, power, oil and steel. The government earns dividends based on their profits. Traditionally many PSUs reinvested profits in expansion and paid modest dividends. In recent years, however, the Department of Investment and Public Asset Management (DIPAM) has urged PSUs to return a larger share of profits to the government.
Details of the surge
- Major contributors to the dividend receipts include Coal India, Oil and Natural Gas Corporation (ONGC), Power Grid Corporation and NTPC.
- DIPAM guidelines ask PSUs to pay at least 30% of profit after tax or 5% of net worth as dividends, whichever is higher.
- The increased payout has improved government cash flow but may leave less capital for modernisation and diversification of PSU operations.
Significance
A higher dividend helps the government fund social programmes and infrastructure without raising taxes. However, over‑dependence on PSU dividends can discourage long‑term investment and competitiveness. Policymakers must strike a balance between short‑term fiscal needs and the sustainability of state‑owned enterprises.