The central government is asking a record dividend of Rs. 19,000 crore from the publically owned oil companies to support its exchequer. The amount is around 5 per cent more than the dividend it asked from the state-owned oil marketing companies (OMCs). The biggest oil companies, ONGC and Indian Oil have been asked to pay 60 per cent of the total dividend. As per a report in the Economic Times, for the current fiscal the Ministry of Finance has demanded the oil companies to maintain or give higher payout vis-à-vis last year.

Slow-paced economy to be blamed?

It is to be noted that the government is majorly dependent on the tax collections for its revenue generation and dividends out of the investment it makes. The snail-paced Indian Economy has led to the government getting lower than expected GST collection from the companies. As per an estimate by CLSA, tepid growth of tax collection and the relief package provided by the government have created a shortfall of more than Rs. 2 lakh crore in the running fiscal year.

ONGC oil platform
Wikipedia Commons

So with the lower tax collection from the private companies, the government either goes for loans from the market or disinvest the companies in which it has majority stakes. This time the government is trying all possible ways to avoid taking loans from the financial market that is already facing a huge cash crunch after the default of IL&FS. So, the only means left with the centre to shore up its finance is to demand higher dividend from the companies it has majority stakes. Moreover, in recent times, the government is aggressively looking to disinvest Air India and BPCL to meet its fiscal deficit target. Interestingly, the centre has set a fiscal deficit target of 3.3% of the GDP for the running fiscal year.

Meanwhile, the executives of these companies argue that despite a fall in profits this year, the demand for a higher dividend is being made by the government. They further complained the centre is demanding higher dividend even after it has shed its stakes in the oil companies. As per the people close to the development, the centre has asked ONGC to pay a dividend of about Rs 6,500 crore, Indian Oil is expected Rs 5,500 crore, BPCL Rs 2,500 crore, GAIL Rs 2,000 crore, Oil India Rs 1,500 crore and Engineers India Rs 1,000 crore.

FILE PHOTO: A worker rides a bicycle at the Bharat Petroleum Corporation Ltd. refinery in Mumbai, India  REUTERS/Punit Paranjpe/File PhotoReuters

The executive also said that the companies will have to take loans to pay such high dividends. He said, "What they are asking for is not in sync with the profits reported so far this year.  "Higher dividend outgo means you either cut down on your own planned spending or borrow more, which raises your finance cost."