With news of filing of draft initial public holding (IPO) for the insurance behemoth LIC in the first week of January buzzing in media, the Peoples’ Commission on Public Sector and Public Services has come out with a damning letter exposing the Central government’s disinvestment plan as “thoughtless.” In its opening, it warns that the IPO “sends a negative message on the government’s intention and resolve to fulfil its Constitutional mandate under the Directive Principles to promote the welfare of the people.”
“The Commission fears that the dilution of government stake would dramatically reorient the LIC from what it has meant to the people over the decades. Most importantly, the change in the character of LIC is likely to significantly limit the reach of life insurance in India, a task that has been accomplished singlehandedly by this institution, which has been India’s pride. Indeed, the LIC is sui generis in the world of finance; nothing like it exists anywhere in the world.”
The Peoples’ Commission includes renowned economists, bureaucrats, advocates and senior journalists such as Thomas Isaac, CP Chandrashekhar, Prabhat Patnaik, Aditi Mehta, Indira Jaising, SP Shukla, among others.
Raising doubts over the disinvestment process itself, the Commission worries that, “The government, by allowing the valuation exercise which is conducted by an actuarial consultancy that has little experience in understanding the working of a unique insurance service provider like the LIC, runs the risk of significantly undervaluing its assets. The only beneficiaries from such an egregious course would be private and foreign investors participating in the proposed IPO.”
One may be reminded that Finance Minister Nirmala Sitharaman has set a March deadline for the listing. If investors agree with the $203 billion valuation sought by the government, LIC would compete against India’s biggest companies — Reliance Industries Ltd. and Tata Consultancy Services Ltd.
Further, according to the government, the IPO would account for the bulk of a $23.5 billion asset-sale target needed to plug India’s widening budget deficit, which is forecast to be 6.8% in 2022.
“We also wish to point out in this context the inherent weaknesses in the government justifying
disinvestment of the LIC and the other CPSEs on the ground that it requires additional fiscal resources to fund its social sector schemes. There is ample opportunity for the government to prune many items of non-essential and unproductive public expenditure, thereby reducing the fiscal gap. Moreover, the government, in our view, should levy redistributive taxes on the more affluent sections of the society to finance social security schemes for low-income groups, especially considering that the existing paradigm of development has widened the income inequalities among the people.”
After a thoroughgoing discussion of the various aspects of LIC’s proposed IPO, the letter is unequivocal in its final findings: “Considering that it is millions of small policy holders who have almost exclusively funded LIC's phenomenal growth over the last six decades, without any significant support from the public exchequer, the way the government has relegated the policy holders to the background, merely to benefit a few affluent investors, is patently reprehensible and the government should drop disinvestment of the LIC altogether.”
Concluding its statement, the Commission adds that, “We hope that political parties and Parliament take note of these concerns and intervene in the matter to resurrect the future of the LIC.”