If an enterprise with a ₹5-crore investment fetches a ₹2,500-crore annual dividend, generates ₹6-lakh crore earning, yields ₹10,000 crore tax and helps accumulate ₹31-lakh-crore assets, would it be prudent to sell its stake, even though the social benefits out of that enterprise — like efficiently serving 29 crore people and providing direct employment to 13,00,000 — are no consideration? ‘No, not all’, any diligent entrepreneur would assert.
But the government, which has been garnering all these and many more benefits from the Life Insurance Corporation of India (LIC), is in a hurry to sell a part of its stake. The Cabinet Committee on Economic Affairs gave its in-principle approval for an IPO (Initial Public Offer) and the actual sale is most likely to start during the last quarter of the current fiscal (January-March 2022).
The government maintains that it only wants to go for an IPO and not for a privatisation. But making a dent in the government’s monopoly through the IPO would be nothing but the beginning of the behemoth’s privatisation.
Considering its unparalleled achievements, in terms of not only the enormous social benefits it has generated but the support it has provided to the exchequer during difficult times, does not LIC qualify to be on the top of exclusion list for privatisation? But the enormous potential of the milch cow (LIC’s IPO alone is pencilled in to fetch around ₹1-lakh crore of the ₹1.75-lakh crore disinvestment target) and the urgent need for funds makes the government blind to the damage it is going to cause in the long run. It is not at all reasonable to sell the LIC stake, the family silver, for the fiscal deficit needs.
Even a cursory look at the birth and evolution of LIC shows how ludicrous is the idea of easing monopoly control on it. Private insurance did not work in public interest during the pre- and early post-Independence years. The very first life insurer, 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 persons like Mutty Lall Seal to make the British companies agree to insure Indians’ lives.
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 like money laundering and false claims of big business houses and their accommodating sister concerns in the insurance business.
Thus, to protect the public interest, LIC was formed, just with ₹5-crore capital, in 1956, amalgamating 245 private entities, which included 154 Indian and 16 foreign insurance firms and 75 provident fund societies.
Although the capital was enhanced to ₹100 crore, it was not an extra burden; the LIC internally generated the sum. The present increase of ₹25,000 crore authorised capital, too, doesn’t serve any useful purpose so long as the sovereign guarantee to policyholders (Section 37) remains intact. Despite minimal government support and private competition since 1999, LIC’s growth has been phenomenal. Its market share, in terms of number of policies issued, in March 2021 was 81.04 per cent and and by premium amount, 64.74 per cent.
The customer service of LIC has been excellent even in 1993 when MARG’s survey was employed by the RN Malhotra Committee; 97 per cent of the respondents rated the service good/excellent.
LIC has eight zonal offices, 113 divisional offices, 2,048 branches 1,526 satellite offices and 1,178 mini-offices in the country (March 3, 2020). It has branches in Fiji (Suva and Lautoka), Mauritius (Port Louis) and the UK (Wembley) and joint ventures in Bahrain, Nepal, Sri Lanka, Kenya, Saudi Arabia and Bangladesh as also a foreign wholly-owned subsidiary in Singapore.
With its ₹31-lakh-crore balance sheet, LIC is the country’s second-largest financial services institution next only to SBI with ₹39.51-lakh-crore assets. LIC’s sum assured stands at ₹56.86-lakh-crore, has 1,14,498 employees besides 10,80,809 active agents out of a total of 12,08,826 (as of March 31, 2020), which means it provides direct employment to 13.23 lakh persons.
Although the government gets only 5 per cent of the surplus, leaving 95 per cent to the policyholders, it got a dividend of ₹2,697.74 crore in 2019-20. The net total income was ₹6,15,882.94 crore. The taxes LIC paid that year amounted to ₹10,225.24 crore.
Besides being the biggest institutional investor in the country (₹30.70-lakh-crore as of March 31, 2020), LIC gives funds support to the government in a big way. During 2019-20 it subscribed to ₹1,78,717.61-crore worth of Government of India securities and ₹1,28,483.62 crore of State governments’ borrowings. During the same year, it invested ₹52,297.79 crore in the social sector: Power, housing, water supply and sewerage, roads, bridges and railways.
The investments, as of March 31, 2020, in Central, State, social sector and other government guaranteed securities aggregated ₹24.01-lakh crore.
LIC is into various other activities as well: it owns LIC Housing Finance Ltd (with ₹2.10-lakh crore outstanding loans as of March 31, 2020), LIC Mutual Fund Asset Management Company Ltd, LIC Pension Fund Ltd, LIC Cards Services Ltd and IDBI Bank.
At least one thing that should deter the government from the LIC disinvestment is the support it gets for its the other PSU disinvestments; LIC purchases a substantial portion of the stake in other PSUs. LIC was allotted 4.4 per cent of the 5 per cent divested in ONGC in 2012; 60 per cent (₹6,000 crore) of the NMDC’s stake (of ₹9,928 crore) in 2009-10; and ₹4,263 crore of NTPC’s ₹8,480 crore.
Other purchases include: SAIL (71 per cent in 2013), BHEL (₹2,685 crore in 2014), Coal India Ltd (₹7,000 crore), Indian Oil Corporation (₹8,000 crore) and GIC (₹8,000 crore) in 2015; New India Assurance Company (₹6,500 crore, 2017) and HAL (₹2,900 crore, 2018). Also, LIC bought 51 per cent of the stake in the beleaguered IDBI Bank in 2019.
Thus, LIC is not only providing efficient life insurance service to the people but utilising people’s money for the country’s economic development besides giving huge funds support to the government.
So, the present government has no right to sell the stake without the approval of the people, in general, and the workforce of the organisation, in particular. It is not correct for the government to kill the goose that lays the golden eggs or the kamadhenu that fulfils all its wishes.
The writer is a development economist and commentator on economic and social affairs