What's the story behind India Inc's recent expansion and acquisition spree? Why have managements been so generous in handing out dividends?

Well, India Inc (excluding financial services companies) is sitting on a cash mountain of Rs 3,50,000 crore, nearly three times higher than Rs 1,25,000 crore at the end of March 2006.

Analysts say that retail offers a big opportunity and acquisitions are a way to grow rapidly; there is also the need to deploy this money gainfully.

In 2006-07, industry has declared a total dividend of Rs 40,000 crore and declarations are still coming in. In 2005-06, the dividend payout was Rs 42,300 crore.

The cash surplus figure has been swelled by cash profit of Rs 2,15,000 crore in the 12 months ended March this year, a whopping Rs 30,000 crore raised through public issues and no less than Rs 20,000 crore mobilised through foreign currency convertible bonds. Cash profit is the sum of net profit and depreciation.

Listed public sector undertakings alone have Rs 1,25,000 crore of cash profit and bank balance. The list is headed by oil giant ONGC [Get Quote], which declared a cash profit of over Rs 25,000 crore in the last financial year.

A sizeable portion of its money is parked with banks. "Strictly in keeping with the government's guidelines, we have a panel of 40 banks. All of them are Indian banks; there is no foreign bank on the panel. We have set exposure limits for each," said R S Sharma, the oil behemoth's chairman and managing director.

About new ventures that may be funded with this money, Sharma, who was confirmed by the government in this post last week, said he could discuss the issue after some time.

However, most of the cash with oil and gas companies is likely to get deployed in the next few years.

Amid expectations of a manifold increase in gas supplies over the next five years, ONGC, Reliance Industries [Get Quote], Indian Oil [Get Quote] Corp and GAIL plan to lay extensive pipelines. Over the next five years, 21,000 km of pipelines are likely to be added to the oil and gas supply network.

Then there are acquisitions. Tata Steel's [Get Quote] recent purchase of European steel maker Corus was funded by Tata Sons, the holding company of the group, which has received over Rs 1,400 crore in dividend over the last three years.

Tata Steel itself made a cash profit of over Rs 5,000 crore in 2006-07. Its software sibling, Tata Consultancy Services [Get Quote], declared a cash profit of Rs 4,100 crore.

TCS has been declaring dividends every quarter. Besides, it is funding nearly all its acquisitions, mostly small ones, through internal accrual. Money is also being used for capital expenditure. The rest is parked as liquid funds, such as in the money market.

Most of the other cash-rich companies are using the money to expand capacity or diversify. For instance, Reliance Industries, Bharti Airtel [Get Quote], Aditya Birla Group and RPG Group are making large investments in retail.

The cement sector also plans to expand capacity to cope with the growing demand from real estate, roadways and special economic zones.