Smt Nirmala Sitharaman
Union Finance Minister
Dear Smt Sitharaman,
Earlier, I had written two letters to you (https://www.moneylife.in/article/lic-ipo-gross-underestimated-valuation-put-it-on-hold-says-eas-sarma/66146.html, https://countercurrents.org/2022/01/cpse-disinvestment-valuation-approach-flawed/) about the flawed approach to valuing the LIC for listing it in the stock markets and the injustice meted out to millions of small policy holders, with a view to grant undue benefits to a handful of speculative, affluent stock market investors.
On going through the Draft Red Herring Prospectus (DRHP) for the LIC IPO, I find that your Ministry continues to ignore the stake of the policy holders who have invested their hard earned savings to help the Corporation grow to its present stature of an insurance behemoth and as the largest social security provider in the country.
I feel distressed at the Ministry doing an accounting jugglery to transfer the bulk of the policyholders’ funds to the shareholders’ account by splitting the consolidated Life Fund, to benefit the stock market investors, at the cost of the policyholders, whereas in all fairness, it is the policy holders who ought to own the Corporation predominantly, as the government’s contribution to its growth has been marginal. It is ironic that policyholders’ window has been restricted to a mere 10% of the equity to be disinvested, whereas the rest of the 90% has been thrown open to the stock market investors, out of whom 20% has been opened up for foreign investors.
As a promoting shareholder providing a sovereign guarantee for the policies, the government’s role has always been that of a Trustee. By disinvesting its share in equity in favour of stock market investors, including foreign investors, the government would be severely diminishing its own role as a trustee, a prospect that has no valid justification by any stretch of logic. Inducting stock market investors as part equity holders of the LIC would come in direct conflict with the role of the government as its sole trustee. The trusteeship idea is relatable to LIC’s role as a public undertaking set up in pursuance of Article 19(6)(ii) of the Constitution. Under Article 12, the Corporation is deemed to be an arm of the State, with the associated welfare mandate laid out in the Directive Principles and the other relevant provisions of the Constitution. Considering that the recent amendments to the LIC Act envisage the government continuing to have the majority equity share in the LIC, both the State and the LIC will necessarily be under an obligation to discharge their welfare mandate. On the other hand, considering that the stock market investors are exclusively driven by their profit maximisation objective, listing the LIC in the stock market would necessarily come in conflict with the State’s welfare mandate. Apparently, the government has not applied its mind to the long-term implications of this inherent contradiction.
There are 50 million policyholders of LIC who hold around 286 million policies. They are offered a meagre share, according to the DRHP, of only 10% of the 5% equity offered now for disinvestment, which implies that those 50 million policyholders will be compelled to compete among themselves for 31.6 million shares, that too subject to the condition that only those who link their policies to PAN cards would be eligible.
I have made enquiries with some small LIC policyholders, who are reluctant to go through the prescribed, cumbersome process, as they do not possess PAN cards as of now nor do they attract the provisions of the Income Tax Act. Insistence on their applying for and getting PAN cards, opening demat accounts etc. appears to be a ploy used by your Ministry to exclude them from bidding for shares in the LIC. It has opened up the possibility of some unethical benami investors even taking undue advantage of a situation that has been created thus by your Ministry.
I understand that only 10.8 million policyholders have so far linked their policies to their PAN cards, but this figure seems to be exaggerated, as many of them may not eventually bid for equity shares, as they are not familiar with the procedures and as they may not afford it. Even assuming that as manyas 10.8 million policyholders participate in the bidding process, still more than 2/3rds of the total number of policyholders will find themselves excluded. Many such policy holders belong to the disadvantaged sections with meagre incomes. No one in the LIC is trying to reach out to them and help them in bidding for their share of equity. This in effect amounts to exclusion of the small LIC policy holders, who largely comprise the SCs/STs/OBCs, which implies that a gross injustice is being meted out to the most disadvantaged sections among the policyholders.
I feel distressed that the IRDA which has the obligation to safeguard the policyholders’ interests has summarily cleared the prospectus without any semblance of due diligence. The fact that the Finance Ministry has not cared to provide a regularly appointed Chairman for the IRDA at this crucial moment gives credence to the feeling that it is a part of an orchestrated ploy to get the IPO through hastily, compromising the small policyholders’ interests.
Even at this belated hour, I would therefore urge upon you to revoke the proposal to disinvest the LIC, as disinvestment of the Corporation amounts to dismantling the extensive irreplaceable social security cover it provides and meting out injustice to millions of small policyholders.
I hope that your Ministry will ponder over these serious concerns and act before any damage occurs to the interests of the policy holders and the trusteeship role of the government.
E A S Sarma
Former Secretary to Govt of India