<p>Why divest stake in LIC? The government says it is not privatisation, but only an Initial Public Offer of some stake. That was what Anurag Thakur, the then Minister of State for Finance and Corporate Affairs, unequivocally stated in Parliament sometime back. The Cabinet Committee on Economic Affairs has recently given its in-principal approval for the IPO. The government’s fast, preparatory steps indicate that the actual sale is most likely to start during the last quarter of the current fiscal (January-March 2022).</p>.<p>IPO, or by whatever name it is called, the government is going to ease its monopoly control over LIC by selling a part of its stake. It’s part privatisation to begin with.</p>.<p>Considering its unparalleled achievement in terms of not only the enormous social benefit it has generated but the support it has provided to the exchequer in troubled times, does not LIC qualify to be at the top of the list of exclusions from privatisation? But the enormous potential of the milch cow (LIC’s IPO alone is estimated to fetch around Rs 1 lakh crore of the Rs 1.75 lakh crore disinvestment plan for the year) and the urgent need for funds has made the government blind to the damage it will cause in the long run. It is not at all reasonable to sell the stake in LIC to meet fiscal deficit needs.</p>.<p>Even a cursory look at the birth and evolution of LIC shows how ludicrous the idea of easing control over it is. Private insurance did not work in the public interest during the pre- and early post-Independence years. The very first life insurance company, Oriental Life Insurance Company, set up in Calcutta in 1818, served only the European community. This and many other foreign companies did not cover Indians’ lives at all. It required concerted efforts by people like Babu Mutty Lal Seal to make the British companies to agree to insure Indians’ lives. Even after agreeing to this, Indian lives were treated as sub-standard and heavy extra premiums were charged. Although this anomaly was eventually removed, private insurance could not be freed from its frauds and incompetence.</p>.<p class="CrossHead"><strong>Private frauds</strong></p>.<p>Before nationalisation, 25 insurance companies went into liquidation, 80 did not even file their statutory returns, 245 life and 108 general insurance companies failed the policyholders. The Vivian Bose Commission, set up during Nehru’s time, noted many other irregularities, such as money laundering and the false claims of the big business houses and their accommodating sister concerns in the insurance business.</p>.<p>Thus, to protect the public interest, the LIC was formed in 1956 with just Rs 5 crore capital, amalgamating 245 private entities, which included 154 Indian and 16 foreign insurance companies and 75 provident fund societies.</p>.<p>Although the capital was enhanced to Rs 100 crore later, it was not an extra burden; the LIC generated the sum internally. The present increase of Rs 25,000 crore authorised capital doesn’t serve any useful purpose as long as the sovereign guarantee to policyholders (Section 37) remains intact.</p>.<p class="CrossHead"><strong>Humongous growth</strong></p>.<p>Despite minimal government support and private competition since 1999, LIC’s growth has been phenomenal. Its market share in the number of policies (the number is more important than money because the public sector’s focus is on insuring low-income individuals) last financial year was 74.58%. In premium amount, it was 66.18%.</p>.<p>With its Rs 31 lakh crore balance sheet, LIC is the country’s second-largest financial services institution, next only to SBI with its Rs 39.51 lakh crore assets. The sum assured stands at Rs 56.86 lakh crore. It has 1,14,498 employees, besides over 12 lakh agents, which means it provides direct employment to more than 13 lakh people.</p>.<p>Although the government gets only 5% of the surplus, leaving 95% to the policyholders, it got Rs 2,697.74 crore in dividend in 2019-20. The net total income was about Rs 6.16 lakh crore. The taxes LIC paid that year amounted to Rs 10,225.24 crore.</p>.<p>Besides being the biggest institutional investor in the country (Rs 30.7 lakh crore as of March 2020), LIC gives funds to support the government in a big way. During 2019-20, it subscribed to nearly Rs 1.79 lakh crore of Government of India securities and Rs 1.28 lakh crore in states’ borrowings. In the same year, it invested about Rs 52,298 crore in the infrastructure sector: power, housing, water supply and sewerage, roads, bridges and railways. The investments, as of March 2020, in central, state, social sector and other government- guaranteed securities, stood at over Rs 24 lakh crore.</p>.<p>In addition, LIC operates varied other activities: It owns LIC Housing Finance Ltd (with Rs 2.1 lakh crore outstanding loans as of March 2020), LIC Mutual Fund Asset Management Company Ltd, LIC Pension Fund Ltd, LIC Cards Services Ltd., and IDBI Bank.</p>.<p class="CrossHead"><strong>Disinvestment support</strong></p>.<p>At least one thing that should deter the government from LIC disinvestment is the support it gets for its ‘disinvestment’ from other PSUs. LIC buys a substantial portion of the government’s stake in other PSUs. For instance, LIC was allotted 4.4% of the 5% disinvestment in ONGC in 2012; 60% (Rs 6,000 crore) of the stake in NMDC (of Rs 9,928 crore) in 2009-10, and Rs 4,263 crore of NTPC’s Rs 8,480 crore. Other purchases include: SAIL (71% in 2013), BHEL (Rs 2,685 crore in 2014), Coal India Limited (Rs 7,000 crore), Indian Oil Corporation (Rs 8,000 crore), GIC (Rs 8,000 crore), all in 2015; New India Assurance Company (Rs 6,500 crore, 2017) and HAL (Rs 2,900 crore, 2018). Also, LIC bought 51% of the beleaguered IDBI bank in 2019.</p>.<p>Thus, LIC is not only providing efficient life insurance service to the people but also utilising people’s money for the country’s economic development besides giving huge financial support to the government. It is an ‘Apatbhandhava’ in the true sense of the word, to this, previous and future governments. So, the present government has no right to sell the stake without the approval of the people in general and the LIC workforce in particular. Nor would it be wise for the government to kill the goose that lays golden eggs. The government must reconsider the decision to put LIC on the path to privatisation. </p>.<p><em><span class="italic">(The writer is a Development Economist and commentator on economic and social affairs)</span></em></p>
<p>Why divest stake in LIC? The government says it is not privatisation, but only an Initial Public Offer of some stake. That was what Anurag Thakur, the then Minister of State for Finance and Corporate Affairs, unequivocally stated in Parliament sometime back. The Cabinet Committee on Economic Affairs has recently given its in-principal approval for the IPO. The government’s fast, preparatory steps indicate that the actual sale is most likely to start during the last quarter of the current fiscal (January-March 2022).</p>.<p>IPO, or by whatever name it is called, the government is going to ease its monopoly control over LIC by selling a part of its stake. It’s part privatisation to begin with.</p>.<p>Considering its unparalleled achievement in terms of not only the enormous social benefit it has generated but the support it has provided to the exchequer in troubled times, does not LIC qualify to be at the top of the list of exclusions from privatisation? But the enormous potential of the milch cow (LIC’s IPO alone is estimated to fetch around Rs 1 lakh crore of the Rs 1.75 lakh crore disinvestment plan for the year) and the urgent need for funds has made the government blind to the damage it will cause in the long run. It is not at all reasonable to sell the stake in LIC to meet fiscal deficit needs.</p>.<p>Even a cursory look at the birth and evolution of LIC shows how ludicrous the idea of easing control over it is. Private insurance did not work in the public interest during the pre- and early post-Independence years. The very first life insurance company, Oriental Life Insurance Company, set up in Calcutta in 1818, served only the European community. This and many other foreign companies did not cover Indians’ lives at all. It required concerted efforts by people like Babu Mutty Lal Seal to make the British companies to agree to insure Indians’ lives. Even after agreeing to this, Indian lives were treated as sub-standard and heavy extra premiums were charged. Although this anomaly was eventually removed, private insurance could not be freed from its frauds and incompetence.</p>.<p class="CrossHead"><strong>Private frauds</strong></p>.<p>Before nationalisation, 25 insurance companies went into liquidation, 80 did not even file their statutory returns, 245 life and 108 general insurance companies failed the policyholders. The Vivian Bose Commission, set up during Nehru’s time, noted many other irregularities, such as money laundering and the false claims of the big business houses and their accommodating sister concerns in the insurance business.</p>.<p>Thus, to protect the public interest, the LIC was formed in 1956 with just Rs 5 crore capital, amalgamating 245 private entities, which included 154 Indian and 16 foreign insurance companies and 75 provident fund societies.</p>.<p>Although the capital was enhanced to Rs 100 crore later, it was not an extra burden; the LIC generated the sum internally. The present increase of Rs 25,000 crore authorised capital doesn’t serve any useful purpose as long as the sovereign guarantee to policyholders (Section 37) remains intact.</p>.<p class="CrossHead"><strong>Humongous growth</strong></p>.<p>Despite minimal government support and private competition since 1999, LIC’s growth has been phenomenal. Its market share in the number of policies (the number is more important than money because the public sector’s focus is on insuring low-income individuals) last financial year was 74.58%. In premium amount, it was 66.18%.</p>.<p>With its Rs 31 lakh crore balance sheet, LIC is the country’s second-largest financial services institution, next only to SBI with its Rs 39.51 lakh crore assets. The sum assured stands at Rs 56.86 lakh crore. It has 1,14,498 employees, besides over 12 lakh agents, which means it provides direct employment to more than 13 lakh people.</p>.<p>Although the government gets only 5% of the surplus, leaving 95% to the policyholders, it got Rs 2,697.74 crore in dividend in 2019-20. The net total income was about Rs 6.16 lakh crore. The taxes LIC paid that year amounted to Rs 10,225.24 crore.</p>.<p>Besides being the biggest institutional investor in the country (Rs 30.7 lakh crore as of March 2020), LIC gives funds to support the government in a big way. During 2019-20, it subscribed to nearly Rs 1.79 lakh crore of Government of India securities and Rs 1.28 lakh crore in states’ borrowings. In the same year, it invested about Rs 52,298 crore in the infrastructure sector: power, housing, water supply and sewerage, roads, bridges and railways. The investments, as of March 2020, in central, state, social sector and other government- guaranteed securities, stood at over Rs 24 lakh crore.</p>.<p>In addition, LIC operates varied other activities: It owns LIC Housing Finance Ltd (with Rs 2.1 lakh crore outstanding loans as of March 2020), LIC Mutual Fund Asset Management Company Ltd, LIC Pension Fund Ltd, LIC Cards Services Ltd., and IDBI Bank.</p>.<p class="CrossHead"><strong>Disinvestment support</strong></p>.<p>At least one thing that should deter the government from LIC disinvestment is the support it gets for its ‘disinvestment’ from other PSUs. LIC buys a substantial portion of the government’s stake in other PSUs. For instance, LIC was allotted 4.4% of the 5% disinvestment in ONGC in 2012; 60% (Rs 6,000 crore) of the stake in NMDC (of Rs 9,928 crore) in 2009-10, and Rs 4,263 crore of NTPC’s Rs 8,480 crore. Other purchases include: SAIL (71% in 2013), BHEL (Rs 2,685 crore in 2014), Coal India Limited (Rs 7,000 crore), Indian Oil Corporation (Rs 8,000 crore), GIC (Rs 8,000 crore), all in 2015; New India Assurance Company (Rs 6,500 crore, 2017) and HAL (Rs 2,900 crore, 2018). Also, LIC bought 51% of the beleaguered IDBI bank in 2019.</p>.<p>Thus, LIC is not only providing efficient life insurance service to the people but also utilising people’s money for the country’s economic development besides giving huge financial support to the government. It is an ‘Apatbhandhava’ in the true sense of the word, to this, previous and future governments. So, the present government has no right to sell the stake without the approval of the people in general and the LIC workforce in particular. Nor would it be wise for the government to kill the goose that lays golden eggs. The government must reconsider the decision to put LIC on the path to privatisation. </p>.<p><em><span class="italic">(The writer is a Development Economist and commentator on economic and social affairs)</span></em></p>