Killing the goose that lays golden eggs!

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By: P S M Rao

The proposed IPO (Initial Public Offer) of LIC will be the beginning of its privatization, to say it without mincing words, although the government maintains that it is not so. The IPO is nothing but disinvesting a part of the behemoth’s stake, part-privatization. The government is taking steps to t launch the IPO as soon as possible. The LIC statute was amended in the Finance Bill 2021 and later notified without much noise. Now, that the Cabinet Committee on Economic Affairs has given its in-principal approval, the IPO’s launch is most likely to happen during the last quarter of the current fiscal (January-March 2022).

Why privatization?

But why the IPO or disinvestment or with whatever name this part privatization move is called? Does not at least LIC qualify exclusion in the privatization/disinvestment list, considering its unparallel achievement in terms of not only the enormous social benefit that it generated, providing life insurance cover to 29 crore people but the support it provided to the exchequer during its troubled times? How far is it reasonable to sell the LIC’s stake, the family silver, for the current fiscal deficit needs of the center (LIC’s IPO’s estimated share is some Rs.90,000 to 1.0 lac crore in the Rs.1.75 lac crore disinvestment plan for 2021-22, the fears of difficulty in correctly valuing LIC’s shares notwithstanding)?

A cursory look, at least, at the reasons for LIC’sbirth and its achievements show how ludicrous is the idea of loosening the government’s monopoly control on the insurance giant.


Private insurance did not work in the public interest during the pre and early post-Independence years. The very first life insurance, Oriental Life Insurance Company which came from England in 1818 (failed in 1834) to India set up in Calcutta came to serve only the European community. This and many other foreign companies did not cover Indians’ lives at all. It required concerted efforts by persons like Babu Mutty Lal Seal to make the British companies agree to insure Indians’ lives.  Even after agreeing to this, Indian lives were treated as sub-standard, and heavy extra premiums were charged. Although the anomaly disappeared in course of time, the private insurance could not evoke general public confidence even after Independence due to large-scale frauds and incompetencies.

Private frauds

Before nationalization, 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 the false claims of the big business houses facilitated by their sister concerns doing insurance business.

Thus, to protect the public interest, the LIC was formed in 1956 with the amalgamation of 245 private entities which included 154 Indian 16 foreign Insurance companies, and 75 provident fund societies.

For doing this what all government had invested was Rs. 5 crore capitals; although the capital was subsequently raised to Rs.100 crore it was no burden on the government as that amount was internally generated by the LIC. The present increase of Rs.25,000 crore authorized capital serves no useful purpose if the government doesn’t change its present character of giving sovereign guarantees to the policyholders (Section 37 of the LIC Act, 1956).

LIC’s humongous growth

Despite minimal government support or even the introduction of competition to the government’s monopoly in 1999 LIC’s growth has been phenomenal. The corporation with its headquarters in Mumbai has 8 zonal offices and 113 divisional offices, 2048 branches 1,526 Satellite Offices (SOs) and 1,178 Mini Offices in the country (31 March 2020 figures).LIC has its foreign branches, in Fiji (Suva and Lautoka), Mauritius (Port Louis) and United Kingdom (Wembley).  It has a joint venture in Bahrain, Nepal, Sri Lanka, Kenya, Saudi Arabia, and Bangladesh and a foreign wholly-owned subsidiary in Singapore.

Together with this deep-rooted and widespread presence, the LIC’s unapparelled achievements manifest themselves in umpteen other indicators. The LIC has a life fund of Rs.31,14,496.05 Crore (2019-20 figure). With its above Rs 31 lakh crore balance sheet, LIC is the country’s second-largest financial services institution (the first one, SBI has Rs 39.51 lakh crore assets). The sum assured stands at Rs.56,86,035.01 crore. The LIC has 1,14,498 employees besides 10,80,809 active agents out of total agents of 12,08,826 (figures as of 31 March 2020) which means its direct employment to 13.23 lac persons. LIC’s market share is 68.74% in terms of Total First Year Premium and 75.90% in terms of New Business Policies (2019-20).

The government though it gets 5% of surplus leaving 95% distributed to the policyholders (another unique feature of LIC that benefits policyholders) gets a huge dividend; for instance, it got Rs 2,697.74crore for the financial year 2019-20. In 2019-20, its total income was Rs 6,15,883 crore with a net profit of Rs 2,713 crore. Besides dividends, LIC generates heavy tax income to governments; it paid taxes (including service tax) to the tune of Rs.10,225.24 crore in 2019-20.

The customer service of the public sector insurance was excellent as found, not just today, but when the MARG’s survey was employed by R.N Malhotra Committee in 1993 reforms; 97 percent of the respondents surveyed rated the service as good/excellent.

Mammoth help to government

Besides being the biggest Institutional Investor in the country (Rs. 30,69,941.67 Crore investment as of 31st March 2020 was more than that of all the FIIs put together), the LIC helped the government with huge fund support. During 2019-20 it subscribed an amount of Rs. 1,78,717.61 Crore to the Government of India securities and Rs. 1,28,483.62 Crore to the new loan issues of the various State Governments.

During the same year, it invested Rs. 52,297.79 Crore in the social sector comprising Projects/Schemes for generation and transmission of Power, Housing Sector, Water Supply, and Sewerage Projects/Schemes, Development of Roads, Bridges, Road Transport & Railways.

The investments as of 31.03.2020 by way of Central, State, and Other Government Guaranteed Marketable securities, Loans, Debentures &Equity investments in Infrastructure and Social Sector amounts to Rs. 24,01,456.50 Crore.

In addition to all this, LIC owns real estate of high value. The value as per official books of freehold land is Rs.91 crore, leasehold of Rs.76 crore, and buildings of Rs.1,750 core. The actual market value is estimated to be much more than these official figures.

Impressive diversification

Also, LIC involves itself in diversified activities like owning LIC Housing Finance Ltd (with Rs.2.10 lac crore outstanding loans as of 31 March 2020), LIC Mutual Fund Asset Management Company Ltd (gross sales in 2019-20 Rs.3,01,184 Crore), LIC Pension Fund Ltd (total assets under management Rs. 1,21,027.68 Crore as on 31.3.2020), LIC Cards Services ltd (with total Credit Card portfolio of 3,24,057 as of 31 March 2020) and IDBI (acquired its majority stake in January 2019; its deposits Rs 2,22,424 crore and advances Rs. 1,71,690 as of 31 March 2020).

Disinvestment support

One thing in particular, at least, that should deter the government from LIC disinvestment is the disinvestment support the insurance giant provides to the government. When the government wanted to disinvest equity in some PSUs, it was the LIC that purchased the stake whereby the government got the money it required to meet its deficits while continuing to control the stake through its own organization. Examples: the LIC was allotted 4.4% of the 5% stake of ONGC’s disinvestment in 2012; 60% (Rs.6,000 crore) of the NMDC’s stake (of Rs 9,928 crore) in 2009-10 and Rs. 4,263 crores 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) (these three in 2015); New India Assurance Company (Rs.6,500 crore, 2017) and HAL (Rs.2,900 crore,2018). Also, the LIC bought 51% of the beleaguered IDBI bank’s stake in 2019.

In sum, LIC is helping to public satisfaction and mobilizing savings, acting as trustee to the people’s hard-earned money, sovereign guarantee to policyholders made its credibility impeccable, helping the government to use the public money for public purpose road, rail and other infrastructure building and helping the government to sell the stake of other PSUs and buying it back, thus quenching the government’s thrust for money while stalling private sector from taking undue advantage of public wealth painstakingly built by the PSUs and their workers.

Viewed from any angle it is not a correct decision to dilute the stake of LIC which has been an Apatbhandhava (a friend in need and a protector of the orphaned) to this previous and future governments. Since future and past are involved, the present government has no right to sell the stake without the approval of the people in general, and the workers of the organization, in particular. (The author is a Development Economist and Commentator on Economic and Social affairs based in Mansoorabad, Hyderabad. He can be reached at [email protected])

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