Letter to the Chief Minister of Kerala
“The unilateral manner in which the Centre has acted in proposing disinvestment of the LIC also betrays its lack of sensitivity to respect the States’ stake in the LIC. In the normal course, the Centre ought to have held prior consultations with the States, before taking such a far-reaching decision. I am marking a copy of this letter to the Chief Ministers of the other States, hoping that they too would take a similar initiative in placing the matter before their respective Legislative Assemblies.” -Shri Sarma
Shri Pinarayi Vijayan
Dear Shri Vijayan,
I wish to compliment the Kerala Legislative Assembly for unanimously passing a resolution voicing concern over the Centre’s move to sell its equity in the LIC to stock market investors and urging the Centre to retain the institution as a wholly government-owned CPSE, considering that it has played a key role in the development of the nation (https://economictimes.indiatimes.com/news/politics-and-nation/kerala-assembly-passes-unanimous-resolution-against-lic-ipo/printarticle/90261063.cms).
I especially appreciate the initiative taken by you personally to introduce such a timely resolution for endorsement by the Legislative Assembly.
Private life insurance companies, who were exploiting the people, were nationalised and the LIC was created more than six decades ago with the primary objective of promoting life insurance among the disadvantaged sections of the society at affordable premia and also reach out to the people in the rural and the remotest areas of the country. The LIC has fulfilled that objective admirably, providing the ““much-needed social security cover for the major proportion of the low-income households in the country.
In this process, the Centre has remained a 100% stakeholder through a nominal equity contribution and provided a sovereign guarantee for LIC’s policies, thus playing the unique role of a public trustee for the policy holders. On the other hand, it is the small policyholders who have channelled their hard-earned savings into premium payments and enabled the LIC to become one of the largest life insurers in the world.
It is difficult to find a low-income household in the country today that is not covered by an LIC policy. The policyholders’ funds as on date exceed Rs 28,30,000 Crores. With the help of such a large amount at its disposal, the LIC has been able to fund several infrastructure and social sector projects in the different States. In other words, while the LIC has provided a long-term social security cover for millions of low-income households in each State, the Corporation has also simultaneously utilised the policy holders’ funds to finance socio-economic development of the States. The States have thus become an important stakeholder in the LIC in its present status of a 100% government-owned institution.
Without an elaborate discussion in the Parliament, keeping the States and both the policy holders and the employees of the LIC in the dark, the Centre had summarily decided to amend the LIC Act through the backdoor of the Finance Bill in 2021, to pave the way for disinvesting government’s equity to a handful of affluent, speculative stock market investors. This implies that the Centre has started dismantling the vast social security cover that the LIC has hitherto provided by relinquishing its own role as a public trustee and exposing the policyholders’ funds to the whims and fancies of the stock markets.
The LIC IPO filed by the Centre before the SEBI implies an outright diversion of the bulk of the policyholders’ funds to the shareholders’ account, which means a reduction in the profit share of around 290 million policyholders, mostly low-income households, to benefit a limited number of stock market retail investors, mostly affluent. Clearly, this implies a grave injustice to the policyholders of the LIC.
The Centre is trying to convince the public that no injustice is meted out to the policyholders by offering them a highly restricted window of 10% of the equity proposed to be disinvested, whereas, for all practical purposes, the policyholders ought to have been given the predominant share of the equity, as its is their funds that have allowed the LIC to reach its present status of a life insurance behemoth. On the other hand, the rest of the equity (excluding the portion offered to the employees) would be sold off to stock market investors, which specifically includes 20% of foreign investors!
This shows how the Centre considers foreign investors to be more important than millions of small policyholders of the LIC and the Corporation’s own employees!
The present proposal also implies that it will be the profit-driven stock market investors who will hereafter call the shots in shaping the LIC’s policies, progressively forcing the Corporation to withdraw its coverage from the low-income households, shift its focus away from the rural and the remote areas towards the urban areas, and even move away from funding social sector projects in the States. Even though the Centre proposes to continue as the majority shareholder in the LIC, its welfare mandate stipulated in the Directive Principles of the Constitution will inevitably come in conflict with the stock market compulsions, a prospect on which the Centre has apparently not applied its mind, or perhaps even deliberately resorted to the disinvestment approach to dilute the LIC’s role as a social security provider. If the latter is the case, it undoubtedly amounts to the Centre committing a breach of the public trust.
The unilateral manner in which the Centre has acted in proposing disinvestment of the LIC also betrays its lack of sensitivity to respect the States’ stake in the LIC. In the normal course, the Centre ought to have held prior consultations with the States, before taking such a far-reaching decision.
I am marking a copy of this letter to the Chief Ministers of the other States, hoping that they too would take a similar initiative in placing the matter before their respective Legislative Assemblies.
There is perhaps an urgent need for the States to form a “federal front” to take up such issues collectively. I refer to an earlier letter on the subject addressed to the Tamil Nadu Chief Minister vide https://countercurrents.org/2022/03/help-set-up-a-federal-front-to-thwart-central-leaderships-onslaught-on-federalism/, copy of which had been sent to the other State Chief Ministers, including Kerala.
E A S Sarma
Former Secretary to Govt of India