Rule 48 of the General Financial Rules 2017 Dividends and Profits
Original Rule Text
Visual Summary
Non-Tax Revenue
Dividends and profits are a major source of government income, separate from taxes.
Prompt Payment
Public Sector Enterprises must pay dividends immediately after the decision is made at their AGM.
Monitoring Duty
Government Ministries are responsible for monitoring and ensuring these payments are made on time.
DIPAM Guidelines
Dividend payments must follow the guidelines issued by the Department of Investment and Public Asset Management.
Executive Summary
Rule 48 establishes that dividends and profits from Central Public Sector Enterprises (CPSEs) and the Reserve Bank of India are a crucial part of the government’s non-tax revenue. It mandates that these payments must be made promptly, right after the decision is taken at the Annual General Meeting (AGM). The rule places the responsibility on government ministries and departments to monitor these payments to ensure there are no delays. Furthermore, all dividend payments must comply with the guidelines set by the Department of Investment and Public Asset Management (DIPAM).
In-Depth Analysis of the Rule
Introduction
Rule 48 of the General Financial Rules, 2017, focuses on the timely collection of a significant source of government income: dividends and profits. The government, being a major shareholder in many public sector companies, is entitled to a share of their profits. This rule ensures that this income flows into the government’s account without unnecessary delays, contributing to the nation’s financial health.
Breakdown of the Rule
The rule can be broken down into four key components:
- Source of Revenue: The rule identifies dividends and profits from entities like the Reserve Bank of India and Central Public Sector Enterprises (CPSEs) as a major component of ‘non-tax revenue’. Non-tax revenue is the government’s income from sources other than taxes, such as interest on loans, fees for services, and profits from its investments.
- Mandatory Timeline for Payment: The rule is very specific about the timing. It states that payments ‘shall not be delayed’ and must be made ‘immediately after the decision on dividend is taken in the AGM’. An Annual General Meeting (AGM) is a yearly meeting of a company’s shareholders where key decisions, including the declaration of dividends, are made. This clause removes any ambiguity about when the payment is due.
- Responsibility for Monitoring: It explicitly assigns the duty of oversight to ‘Ministries or Departments’. This means the administrative ministry responsible for a particular CPSE must actively track and ensure that the dividend is paid on time. This creates a clear line of accountability.
- Governing Guidelines: The rule specifies that dividend payments must adhere to guidelines from DIPAM (Department of Investment and Public Asset Management). DIPAM is the central government department that manages government investments and assets, including setting policies for dividends from CPSEs. This ensures a standardized and regulated process across all public sector enterprises.
Practical Example
Let’s consider a fictional government-owned company, ‘National Power Corporation Ltd.’ (NPCL). NPCL holds its AGM on September 20th. At the meeting, the board and shareholders decide to declare a dividend of ₹5,000 crore, of which the government’s share is ₹3,000 crore. According to Rule 48, NPCL must transfer this ₹3,000 crore to the government’s account immediately after the AGM decision. The Ministry of Power, which is the administrative ministry for NPCL, is responsible for monitoring NPCL and ensuring this payment happens without delay. The entire process must follow the dividend policy guidelines issued by DIPAM.
Conclusion
Rule 48 is a straightforward but vital rule for financial discipline. By mandating prompt payment, assigning clear monitoring responsibilities, and referencing a standard set of guidelines, it ensures a smooth and predictable flow of non-tax revenue to the government, which is essential for funding public services and development projects.
Related Provisions
Understanding Rule 48 is enhanced by looking at related rules concerning government revenue and receipts. These provisions provide a broader context for how different types of income are managed:
- Rule 46: Non-Tax Revenues – This rule provides the overarching context, defining non-tax revenues as an important source of government income. Rule 48 details a specific component of this category.
- Rule 47: User Charges – This rule discusses another major component of non-tax revenue, ‘user charges’. Reading it alongside Rule 48 helps in understanding the different streams that constitute the government’s non-tax income.
- Rule 49: Receipts Portal – This rule deals with the mechanism for collecting revenues, including non-tax revenues like dividends. It outlines the government’s move towards an online e-Receipts portal for efficient collection.
Learning Aids
Mnemonics
- DPM-G: Remember the key elements: Dividends & Profits must be paid promptly, Monitored by Ministries, following Guidelines from DIPAM.
Mindmap
Multiple Choice Questions (MCQs)
1. [Easy] According to Rule 48, dividends and profits from CPSEs are considered what type of revenue for the government?
- A) Tax Revenue
- B) Capital Receipts
- C) Non-Tax Revenue
- D) Miscellaneous Receipts
Show Answer
Correct Answer: C) Non-Tax Revenue. The rule explicitly states that dividends and profits are a major component of non-tax revenues.
2. [Medium] What event triggers the immediate payment of dividends by a Central Public Sector Enterprise as per Rule 48?
- A) The end of the financial year.
- B) The publication of the company’s annual report.
- C) The decision on the dividend being taken in the AGM.
- D) A formal demand notice from the concerned Ministry.
Show Answer
Correct Answer: C) The decision on the dividend being taken in the AGM. The rule specifies that payment must be made ‘immediately after the decision on dividend is taken in the AGM’.
3. [Hard] Who is ultimately responsible for ensuring the timely payment of dividends from a CPSE, and whose guidelines must be followed for the payment?
- A) The CEO of the CPSE; RBI guidelines.
- B) The Ministry of Finance; CAG guidelines.
- C) The concerned administrative Ministry or Department; DIPAM guidelines.
- D) The Board of Directors of the CPSE; SEBI guidelines.
Show Answer
Correct Answer: C) The concerned administrative Ministry or Department; DIPAM guidelines. The rule assigns monitoring responsibility to the Ministries/Departments and states that dividends shall be payable as per guidelines issued by DIPAM.
Frequently Asked Questions
What happens if a Central Public Sector Enterprise (CPSE) delays paying its dividend?
Rule 48 states that payment ‘shall not be delayed’. If a delay occurs, the concerned administrative Ministry or Department, which is responsible for monitoring, would be required to follow up and ensure the payment is made. The rule emphasizes promptness as a mandatory requirement.
Who is DIPAM and why are their guidelines important?
DIPAM stands for the Department of Investment and Public Asset Management. It is the government department responsible for managing the central government’s investments in public sector enterprises. Their guidelines are important because they create a uniform and official policy for how and when CPSEs should pay dividends, ensuring consistency and compliance across all government-owned companies.
Does this rule apply to private companies in which the government might have a small share?
The rule specifically mentions ‘Central Public Sector Enterprises’ and the ‘Reserve Bank of India’. It is primarily aimed at entities that are owned or controlled by the Central Government. While the government would receive dividends from any company it invests in, the specific mandates and monitoring duties described in Rule 48 apply to CPSEs.
Key Takeaways
- Dividends from government-owned companies form a significant part of the government’s non-tax income.
- Payments must be made immediately after the company’s Annual General Meeting (AGM) decides on them.
- Government ministries have the duty to watch over these companies and ensure there are no payment delays.
- A specific government department, DIPAM, sets the official rules that all these dividend payments must follow.