when owners want their cash back

Cash becomes excess in a business after all reinvestment needs are met; cash then becomes a potential dividend. However, if any of the capital expenditure payments is postponed, say, for the next period, cash is better served if retained for that purpose. That is, cash then does not become eligible for dividends. 

Usually, managers decide on both the amount of and per share dividend to be paid out. This in practical terms is based directly on the historical per share dividend. Since firms seldom prefer to reduce per share dividend or payout ratio it becomes increasingly difficult to do so in any period. Lower dividends have immediate effect on the market price of the stock. 

Occasionally, however, the owners get to decide on most aspects of corporate finance in a listed firm. This includes investing, financing and dividends decisions. 

This story tells us about one such occasion where the owner decides on the dividend policy for the firm. When the government is the major shareholder in a firm and is in dire need of cash, it is not surprising to see it demand its cash. 

Well, the shareholder is demanding dividends higher and sooner than that of the prior year. We can only hope that cash is not called at the cost of capital expenditure requirements. If it is, the consequences will be felt not now but in later years. Reinvestment is imperative on two counts: for maintaining competitive advantages and expanding market share. 

Ideally, the government is better off in letting public listed firms run independently just like private listed firms so that there is no added pressure on the managers; only caution is that these firms should behave and operate like private firms, without abusing their public status.

Its primary job at this time is to create an environment conducive to investments. Private firms, both domestic and foreign, are ever ready to invest in India given its demographic potential. The government should concentrate on just that lest the opportunity is lost. To achieve that it better be right with its policies.  

Let's hope for that.