Pernicious Step to Subvert LIC
THE worst aspects of the Modi government’s privatisation drive are now coming to the fore. The initial public offering (IPO) prospectus for disinvesting shares in the Life Insurance Corporation (LIC), the crown jewel of the financial sector, is expected to be issued in early February.
The LIC is a unique corporation that has played a pioneering role in spreading the culture of life insurance in the country. The widespread coverage of life insurance achieved through LIC is especially important in the absence of an effective government-backed social security scheme that extends protective cover to people, especially the poor and vulnerable sections.
The LIC has a distinctive structure, which has enabled it to provide insurance to the common people. The claim of profits for the government, which is the primary investor, is limited to just five per cent while 95 per cent of its profits are mandated for policyholders (This has been lowered to 90 per cent in view of disinvestment). Thus, unlike other companies, the bulk of the profits of LIC is allotted to the policyholders and not the shareholders.
Since the LIC was formed in 1956, it has fulfilled the objective set for it of providing insurance cover widely, “particularly to the rural areas and to the socially and economically backward classes”.
Even after allowing private companies into the insurance sector, the LIC has been able to maintain its dominant position in the life insurance business. In terms of life insurance policies issued, the LIC’s market share is almost three-fourths of all life insurance policies; in 2020-21, the LIC earned premium income of Rs 3.03 lakh crore; and it had a policyholder base of 40 crore. Since its inception, the LIC has paid dividends amounting to Rs 28,695 crore to the government. It has also made significant investments in banks and various development projects. The LIC has made big contributions to the infrastructure and social sector schemes in the states. During 2020-21, such contributions amounted to Rs 26,322 crore.
It is such a unique public sector corporation that has now been opened up to private investors, both Indian and foreign. The LIC Act was amended through the Finance Bill of 2021-22 to facilitate the listing of LIC. The government proposes to dilute its equity for private investment progressively over the next decade. From the first IPO, the government stake will be reduced to 75 per cent over the next five years, after which the government has announced it will retain a 51 per cent stake. This will radically alter the character of the LIC as private investors, both Indian and foreign, will exercise pressure to shift the LIC away from its social welfare goals which have been enjoined upon it by the Directive Principles of the Constitution.
The People’s Commission on Public Sector and Public Services has stated in its report on the LIC IPO: “listing of the LIC and its disinvestment will radically alter LIC’s role as a social security provider for the disadvantaged sections, dilute the pivotal role that millions of its small policyholders play, in favour of affluent profit-seeking investors. Indirectly, it implies a thoughtless handing over of control of the vast pool of household savings to private, including foreign, investors”.
The valuation procedure for the LIC IPO has been opaque and has not been put in the public domain. It is reported that the value of the corporation is set at Rs 15 lakh crore and its embedded value of four lakh crore rupees is a gross underestimate. This is typical of the way the assets of the public sector enterprises are being undervalued and sold cheaply to private investors. The LIC IPO will, thus, prove to be a bonanza for big private players.
The scandal of disinvestment and privatisation of central public sector enterprises (CPSEs) was starkly illustrated by the recent sale of Central Electronics Limited (CEL), a company under the department of scientific and industrial research. The CEL was sold to M/s Nandlal Finance and Leasing Private Limited for Rs 210 crore. The CEL is the company that pioneered the development of products in strategic electronics such as solar cells, solar plants, railway signalling systems and defence applications.
Such a CPSE has been sold to a trading company with a dubious track record, which has no fixed assets and no competence whatsoever in technology and management of technological enterprises. The market value of the 50-acre land possessed by the CEL is alone worth Rs 440 crore currently. It had earned a gross profit of Rs 124 crore in FY 2021. The public outcry about this scandalous sale has forced the government to pause the handover of the company.
The Modi government’s plan to dismantle the CPSEs and handover national assets to Indian and foreign corporates is a pernicious design to erode economic sovereignty, subvert the Directive Principles of the Constitution regarding social and economic equality and pave the way for the loot of the people’s resources built up over the decades.
The subversion of the LIC and the public sector must be stopped. This requires the broadest mobilisation of all democratic and patriotic forces to resist this onslaught. The employees of the LIC, general insurance and nationalised banks have been on the path of struggle against privatisation. This struggle should be widened by encompassing all the workers and employees in the central public sector enterprises and become part of the united struggle of the working class.
The two-day all India general strike called by the central trade unions and independent federations on February 23-24 will mark an important stage in this struggle.
(January 27, 2022)