Towards the fag end of December last year, the Life Insurance Corporation (LIC) handed over a whopping annual dividend of ₹2,611 crore to the Central government. In 2019, it registered a growth of 9.9%. The fully government-owned company had also a market share of 76%, despite stiff competition from newer companies in the private sector.
Yet, one month later, Finance Minister Nirmala Sitharaman announced in the Union Budget the government's decision to divest a part of its stake in the LIC. Though the government presented it as a minor announcement, almost all employee unions see it as the first step towards privatisation.
"This is an institution which belongs to crores of policyholders across the country who have reposed their trust in the LIC. The trust is due to various reasons. Most importantly, from a customer's point of view, we have the highest claim settlement ratio of 98.75%, which none of the private insurance companies can match.
These companies often go for litigation to reject claims, which the LIC never does. So, it is important that such an organisation remains in the public sector," says P. Raju, zonal vice president, All India Insurance Employees' Association.
Bonus
The LIC shares close to 90% of its profits as bonus to the policyholders. It has been for years one of the sources of funds for the government to implement big projects. In recent years, there has been criticism that the government is using the LIC's massive cash reserves to bail out organisations facing deep financial crises.
Union leaders cite the recent increase in LIC's stake to around 25% in Infrastructure Leasing and Financial Services (IL&FS), which has defaulted on its repayments. Another much discussed acquisition of shares is in the Industrial Development Bank of India (IDBI), which has a high percentage of non-performing assets. In the Union Budget last week, the government also decided to sell its remaining stake in the IDBI.
Planning Board member K.N. Harilal sees a connection between the LIC stake sale and the introduction of the new optional personal income tax regime. It is meant to disincentivise policy investments in organisations like the LIC, to weaken it. In view of the move to divest a part of the government stake in the LIC, he calls for strengthening of the Movement for India's Financial Independence (MIFI), launched last year with an aim to uphold the country's financial and political independence.