Nirmala Sitharaman announces IPO for the LIC of India

Finance Minister Nirmala Sitharaman presenting the General Budget 2020-21 in the Indian Parliament on Saturday. (Photo: PTI)
Finance Minister Nirmala Sitharaman presenting the General Budget 2020-21 in the Indian Parliament on Saturday. (Photo: PTI)

Finally, a bold move from the Narendra Modi government. While presenting the Union budget on Saturday, Finance Minister Nirmala Sitharaman announced the listing of public sector insurance behemoth Life Insurance Corporation (LIC) of India on the bourses in the next financial year, as part of the government’s disinvestment exercise.

Sitharaman said that only a part of the government stake in LIC would be sold through an initial public offer (IPO). The move will enhance credibility, transparency and accountability in LIC’s functioning, which will then have to adhere to stringent disclosure norms.

“The government’s decision to list LIC is a welcome move. This will result in better governance and greater transparency given the disclosure requirements of listed entities. It will also contribute materially to the efforts of the government to raise funds through divestments,” Sandeep Ghosh, partner & leader — Financial Services Advisory, EY India said.

Until now, the LIC that holds savings and investments of millions of people, has been actively bailing out other ailing public sector companies. In 2018, when it decided to pick up stake in the NPA (non performing asset) ridden IDBI Bank, many eye brows were raised. In fact, the public sector life insurer has been consistently subscribing to CPSE shares during the disinvestment process, including those of Coal India, Hindustan Aeronautics Limited and The New India Assurance Co. Ltd.

“In 2015, LIC bought almost 50% of Coal India’s and 86% of Indian Oil’s issue size. A year earlier, it had bought roughly 72% of SAIL’s offer size and subsequently 5% of the government’s stake in BHEL through private placement, since going to the market had been ruled out,” a Pahle India study said. The capital of the LIC is also collected from insurance policies.

While on paper, the decision to list LIC is a bold move, but the jury is out on its efficacy. The exercise of launching an IPO for LIC will not be easy and the trade unions have already threatened to go on protest. That apart, it is to be seen whether it remains just another big announcement only on paper or some concrete action has taken place.

Let us not forget that the disinvestment target for 2019-20 was set at Rs 1.05 lakh crore. However, from what it appears today, it is unlikely to exceed Rs 60,000 crore, falling way short of the target. The government had expected a big bonanza from the sale of public carrier Air India. However, the divestment of Air India is yet to take of.

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