Higher Dividends can help develop equity culture

It is common for Corporate Houses to retain a major part of the Profits for future use. In most of the cases, there are no clear programs for utilisation of this cash. Profits earned by the company belong to shareholders and their permission must be sought, if it has to retained for future use. A clear cut program for future use of retained profits must be made to the shareholders. This will improve Corporate Governance.

It is good that Tata Sons Ltd., the principal shareholder of Tata group companies and now Infosys founders making a case for higher payout to shareholders. The regulatory bodies like SEBI, Stock Exchanges should involve themselves into the discussion to protect the interests of minority shareholders. The Companies Act should also be amended to protect the interest of shareholders in this respect.

The Tax on Dividend Distribution should be done away with, which is nothing but a double taxation. This causes immense difficulty for small companies, where shareholders are unable to use the profits of the company. The shareholders, who are also directors in most of the cases in these companies resort to questionable means to utilise the same.

The loss of this revenue will set off by increased economic activity in case of higher dividend payout in the hands of retail investors.

Ironically, the retail investors, which are part of middle class have little say in the present democratic system.