It's the golden jubilee of LIC... a time to recall the swiftness and secrecy surrounding the nationalisation of the country's insurance business, 50 years ago.
On the night of January 19, 1956, the then Union Finance Minister, C.D. Deshmukh, announced the nationalisation of the life insurance business. In a memorable speech he referred to the nationalisation of the Imperial Bank of India in 1955 to take banking and credit facilities to the rural areas, and said that the nationalisation of life insurance was a step further towards the effective mobilisation of people's savings.
Deshmukh had recorded in his autobiography that when all else was forgotten in the future, he should be remembered for nationalising the country's life insurance.
Operation of utmost secrecy
The magnitude, swiftness and secrecy of the nationalisation and take-over operations need to be recalled on this occasion of the golden jubilee of life insurance nationalisation and of the Life Insurance Corporation (LIC), for it is a world-record in financial services.
The presidential ordinance was issued on the night of January 19, 1956. The next morning, the regulator's officials were ready when the head offices of the insurers opened. They got in touch with the CEOs who were to assume charge as custodians of other insurers early in the morning, gave them the appointment orders and briefed them appropriately. The custodians in turn, took over the companies assigned to them soon after these companies opened offices on January 20. The operation was carried out with military precision. I was working as a personal assistant to the CEO of an insurer at the time of nationalisation.
It is appropriate here to note the part played by the then Controller of Insurance, A. Rajagopalan, a Fellow of the Institute of Actuaries (London), in life insurance nationalisation, its implementation in total secrecy and the setting up of the LIC.
He was also appointed by the Government as the Managing Director of the LIC. I was privileged to be one of his personal assistants, soon after the LIC was formed.
Rajagopalan was later assigned by the Government of India to advise the Sri Lanka Government on setting up its nationalised insurance corporation. He also played a prominent role in the nationalisation of general insurance in 1972, when he was heading the insurance department of the Finance Ministry.
Massive integration process
The period between January 20 and August 31, 1956, was utilised to set up offices, find manpower, and prepare the various manuals and procedures for the functioning of the corporation. A joint committee of senior custodians was constituted to oversee these operations.
The magnitude of the operations could be appreciated from the fact that on the appointed day, LIC began with a network of branches and sub-offices at 168 centres as against 97 before nationalisation. The number of branches and sub-offices opened shortly after the appointed day was 209.
This involved the movement of personnel, officers, and supervisory, clerical and subordinate staff from metropolitan headquarters to the rural divisions. Credit must be given to employees at all levels, for their spontaneous co-operation and for accepting transfers to mofussil stations, notwithstanding the personal hardships involved.
Government's mandate to LIC
The government's mandate that the LIC should conduct its business to the best advantage of the community and, at the same time, function on business principles was clearly spelt out in the LIC Act itself. As a corollary to this, the Finance Minister convinced the Parliament of the need to keep the LIC out of the purview of the Comptroller and Auditor General of India.
The LIC Act was unique in one more respect. Section 43 of the LIC Act listed:
* the provisions of the Insurance Act 1938 that would apply to LIC;
* those that would apply to LIC with such conditions and modifications that the Central Government may notify in the official gazette; and
* similar powers for notifying with such conditions and modifications it may make for the remaining sections of the Insurance Act.
The only conditions were that such notifications should be published in the Official Gazette, laid on the table of the House within 30 days and subject to such modifications as the Parliament makes. This unique provision enabled the government to deal expeditiously in emergencies to amend the statute subject to the ratification of Parliament.
When the government nationalised the general insurance business 16 years later, a similar provision was also made in Section 35 of the General Insurance Business (Nationalisation) Act, 1972. It would be useful if the legislature empowers the Central government similarly in all the regulatory statutes, especially those in the financial sector. Such a provision is deemed urgent in the complex global business environment operating today.
Much is being talked and written about autonomous boards and independent directors. Half a century ago, the government had recognised this while constituting the boards of the financial institutions it created in the post-Independence days. For instance, the first board of the LIC consisted of a part-time Chairman, the Finance Secretary, H.M. Patel, three government directors, four executive directors and seven independent directors, comprising businessmen and educationists who played a valuable part in guiding the corporation in its formative years.