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Why LIC Sell-Off is Worse than Selling Family Silver

Promises of limited sell-off have been made and broken before. India must not tinker with its only social security; it would be unconstitutional and unfair to people.

The Union government is on a selling spree. It wants to sell the banks, public sector enterprises, including strategic ones, other public assets and the Life Insurance Corporation of India (LIC), the jewel in the crown of public assets.

Thirty-six per cent of the total electorate voted for the present regime to govern the country for five years, not sell it off. Can a tenant sell a house taken on a lease?

LIC is Unique

The LIC is not a company under the Companies Act, 2013. It is an arm of the State to provide social security to the people, mobilise savings, invest for the common good in areas of public interest, and provide life insurance.

It was started on 19 January 1956 by taking over insurance companies and a few provident funds that were failing. Many of them had not submitted their accounts to the authorities. The Union government invested just Rs. 5 crore in it at the time. When the capital of LIC was increased to Rs. 100 crores by amending the LIC Act, the government did not provide the money—the required Rs. 95 crores were appropriated from the policyholders’ fund.

Similarly, the government did not provide capital for subsidiaries like LIC Mutual Fund or LIC Housing Finance. Again, the policyholders’ funds or reserves provided the capital requirements. Today, the assets of LIC are worth more than Rs. 38 lakh crores. It has provided Rs. 28,605 crores as dividends to the government. It holds the highest quantity of land and fixed assets, after the Indian Railways.

LIC has invested Rs. 36 lakh crores in Union and state government securities, bonds and development projects. LIC has provided Rs. 55 lakh crores for twelve five-year plans.

Former President of India Dr Abdul Kalam had lauded LIC at its Golden Jubilee celebrations, calling it the only organisation in India that does not seek funds from the government but gives abundantly to it.

In our country, we do not have social security schemes that are available to people in socialist countries and developed nations. LIC offers the only social security we have. It runs many government schemes at subsidised policy premiums. One of them is the Pradhan Mantri Jeevan Bima Yojana, in which you get life security of Rs. 2 lakh for a highly-affordable premium of Rs. 330.

Similarly, in the Pradhan Mantri Vaya Vandana Yojana, people can deposit a monthly or quarterly premium and receive a pension of Rs. 1,000 to Rs. 5,000 per month. This policy is better than the Employees Provident Scheme, and even those who have joined the EPS join this scheme or subscribe to the Atal Pension Yojana, which has similar features.

On top of these, the LIC also manages thirteen pension funds for the public and private sectors. It concentrates on reaching the un-reached. In 2019-20, it brought 185.53 lakh new policyholders to its books, and in 2020-21, another 186.44 lakh new policyholders. It also runs micro-insurance schemes directly and through Non-Government Organisations, Self-Help Groups, cooperative societies, cooperative banks, Regional Rural Banks, and through the network of business correspondents, and so on.

The average policy size (called ticket size) of the LIC is Rs. 16,156, whereas the average ticket size for private life insurance companies is Rs. 89,004. This gap clearly shows that the LIC caters to the poor, middle class and low-income policyholders while private companies concentrate on high-value customers. Further, private companies concentrate on unit-linked savings schemes more than life cover policies, because the profit is much higher in the former.

The LIC also focuses on rural and semi-urban areas. According to the Insurance Regulatory and Development Authority of India (IRDA) annual report for 2020-21, LIC has 1,844 branches in Tier-I cities whose population is above 1 lakh as per RBI classification. In contrast, the private companies have 4,717 branches in this top category of towns. However, when we look at Tier 4 towns, which have a population lower than 20,000, the LIC has 1,037 branches whereas private companies have just 107 branches. So, the LIC is spread across the country while private companies are concentrated in cities and big towns.

Further, the LIC holds 21.45% of its policies from rural areas. Despite 23 private companies in the insurance sector, including some schemes run by banks such as SBI, HDFC, ICICI and others, the LIC holds 75% of the total life insurance policies in the country.

Policyholders are shareholders

LIC is the only organisation that provided 95% (now reduced to 90%) of its profits to its policyholders as bonus payments. Rightfully so, as LIC has grown because of its policyholders.

Privatisation of LIC is anti-Constitution

The Life Insurance Corporation is an arm of the State under Article 12 of the Constitution. It has the Sovereign Guarantee of the government. Passing a law against the common good of the people violates Article 19(6) of the Constitution of India. Further, as per Art. 38(1), the State has to take care of the welfare of its people. Art. 300A says the State cannot appropriate the property of its people. Art 16(4) provides for reservation in employment, which the LIC meticulously follows.

With privatisation, all these guarantees and promises will get violated. The government can claim that it is only disinvesting 10% of the company, that it will always hold 51% share in the LIC. But similar promises were made to bankers in Parliament, but that did not stop things from changing anyway. That is why there are widespread concerns that this round of sell-off of LIC is only a first step towards deeper privatisation.

All over the world, hundreds of life insurance companies have failed in recent years. Reports from the United States and Europe show how this has unfolded. The classic case is the American Investment Corporation (AIG), which had offices in 120 countries and 96,000 employees but still collapsed in 2008. The federal government in the United States had to rescue AIG with an infusion of $205 billion (more than Rs.15 lakh crores.) If there is a similar failure in India—which is certain after privatisation—can the Union government save such an entity? It is already lacking when it comes to mobilising Rs. 75,000 crores for the Budget, but it wants to privatise LIC!

No More Humane Approach

The most important aspect of LIC is its humane approach, which we saw during the COVID-19 pandemic as well as any other calamity or disaster that strikes the country or individuals. We cannot expect similar treatment from the private sector, for it exists only for profit. My relative, whose husband died in a vehicle accident had a life insurance policy with Bharti Axa Life Insurance Company. Even ten years later, she could not get the company to fulfil her claim. The insurance company has gone to the Supreme Court against the lower court’s verdict. This is just one instance, but it is not an isolated one, and the “liberal policy towards paying claims” of LIC is now widely acknowledged.

Hence, LIC is far too important for the people of the country to let go of through privatisation. When distressed, people sell their family silver—but they only let go of things they do not use regularly or need for survival. LIC is not just the family silver. It is a national asset, essential to the Indian people. Please don’t sell LIC, madam Finance Minister.

The author is joint convenor, People First. The views are personal.

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