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Life insurance forms a vibrant part of the financial sector and plays a vital role in the national economy. It mobilizes small savings of the people, converts it into Capital, and makes this Capital available for our nation’s development. It sells a promise, not a product. When the business is selling a promise, then it must naturally be with the State control.
Unfortunately, during the Budget Presentation, Finance Minister Smt.Nirmala Sitharaman made three important announcements relating to the insurance industry in her budget proposals.
- The government would bring the LIC IPO in this Financial Year. To facilitate this, necessary amendments to the LIC Act have been incorporated in the Finance Bill.
- The government would increase FDI in the insurance sector from 49% to 74% and allow foreign ownership in insurance with some safeguards.
- The government has plans to privatize one general insurance company along with two public sector banks.
All the three proposals are not in the interest of the insurance industry, the Indian economy and the people. The LIC was created through an Act of Parliament. It was given the task of raising resources for faster industrialization of the country by collecting small savings in the form of premiums while giving utmost security to the policyholders. The LIC has been very successful in meeting these objectives. The disinvestment in LIC is the first step towards privatization. Therefore, LIC IPO violates the very objectives of its creation.
The government says it intends to list LIC of India to bring in discipline, to create assets and to unlock the values to the customers. What more discipline is required when LIC of India brings out regular public disclosures, submits all reports to the regulator IRDA on a monthly basis and submits its books of accounts on the floor of the Parliament for scrutiny? As regards assets, LIC of India has grown from an initial asset base of 5 crores invested by the then central government to an astonishing figure of 34 lac crores, generates an investment surplus of 3.5 to 4.5 lac crores every year.
It is difficult to find any sector of the economy where the footprints of this great institution are not found. The LIC is a perfect example of how a public sector enterprise must carry out its activities keeping a fine balance between national development and the interest of its own customers. The huge asset base of LIC of India is bigger than international giants like APPLE, EXXON MOBILE and bigger than GDP of 75 countries. It has invested in banking sector, oil sector, cement sector, IT sector, steel sector, heavy electrical sector etc. It has been part of every Indian life by investing in railways, transport, irrigation, water projects, housing etc. LIC of India distributes its annual surplus in the order of 95% to the policyholders and 5% to the central government and thus unlocks its values entirely to the policyholders and to the society at large.
But the central government wants to unlock these huge astronomical assets through disinvestments to a few rich people. The insurance sector was opened for private companies through the IRDA Act 1999. Initially the IRDA Act allowed 26 per cent foreign equity in private insurance companies. Subsequently, the FDI limit was increased from 26 to 49 per cent in the year 2015. The government has now proposed to increase it from 49 to 74 per cent and has decided to allow even foreign ownership in insurance company.
It is interesting to note that the actual share of FDI in the total investments in the private insurance industry today is much less than the current limit of 49%. According to the Annual Report of the IRDA 2018-19, as of 31st March 2019 FDI in the life insurance industry was Rs.9764.20 crores and that in the general insurance industry was Rs. 4045.63 crores. Thus, the share of FDI in the total investments of the life and general insurance industries was only 35.36% and 23.66% against the present limit of 49%.
There is therefore no justification for FDI increase in the insurance industry from 49 to 74 per cent. Thus, the decision to increase FDI and allow foreign ownership in insurance would only amount to handing over precious savings of the people in India to the hands of foreign capital.
The intention of listing of LIC by the central government is for two reasons: One, economically, to tide over the economic mess and crisis because of the blind adherence to the neoliberal policies, the government intends to bridge the fiscal deficit. Second ideologically, the BJP is against the concept of public sector in general and life insurance in particular. Therefore, the move to disinvest LIC will severely impact the economy and vulnerable sections of the Indian people. It is a duty of every patriotic citizen to join their hands in protecting and nurturing the finest institution of India in the Public Sector.
T. Senthil Kumar, General Secretary South Zone Insurance Employees’ Federation