Is your government consciously defrauding the policyholders of the LIC?



Smt Nirmala Sitharaman

Union Finance Minister

Dear Smt Sitharaman,

Please refer to my letters dated 6-3-2022, 11-4-2022, 16-4-2022 & 23-4-2022 addressed to you on the manner in which the proposed LIC IPO would do gross injustice to millions of its policyholders, largely belonging to the SCs/STs/OBCs.


In my letters cited, I have pointed out to you the five-fold injustice meted out to the policyholders as follows.


  1. Policyholders’ funds being misappropriated for generating undue returns to affluent, speculative stock market investors
  2. Instead of treating the policyholders as the dominant  de facto, proudowners of the LIC, they are being relegated to the background and a measly 10% window is being provided to them, which is far too restricted to accommodate even 1% of them
  3. The cumbersome procedure prescribed for the policyholders to become eligible for investing through their 10% window makes it nearly impossible for the small policyholders (largely SCs/ STs/ OBCs) to link their PAN and Aadhar cards and open DEMAT accounts, to be be able to invest
  4. As if to add insult to injury to the policyholders, a much wider 20% window for foreign investors is provided; the MOF is even seeking, with a begging bowl, foreign sovereign wealth funds to invest, thereby allowing the latter to profiteer at the expense of the policyholders and syphon of their hard earned savings to foreign destinations
  5. Benami investors being allowed to poach illegally on  the small policyholders’ accounts, rent out their accounts and personal data for a song and profiteer at their cost. This has been happening since the second half of 2021, with the government turning a blind eye

In my correspondence, I had demanded answers to the following questions,


  • Apparently, benami investors have been poaching on the small policyholders’ accounts since the second half of 2021. Have not these reports come to the MOF’s attention? What action has MOF taken on these reports?
  • DIPAM and the LIC have triumphantly proclaimed again and again that there has been a flurry of demat accounts opened by the policyholders. Out of the total number of such demat accounts, how many have been opened by benami investors acting clandestinely on behalf of the policyholders? Have DIPAM/ LIC devised a fool-proof system to make sure that only genuine demats are opened in the name of the policyholders? How has the LIC remained a passive spectator while its true owners, namely, the policyholders are being openly exploited?
  • What is the role of the Insurance Regulatory and Development Authority (IRDA) in all this? IRDA’s primary responsibility is to safeguard the policyholders’ interests. Has IRDA failed to discharge that responsibility? Is the MOF indirectly responsible for this by allowing IRDA to remain headless when the LIC IPO had been submitted for clearance?
  • Are MOF/ DIPAM/ LIC proceeding ahead in an undue hurry to push through the IPO without applying their minds to the distressing aspects listed above?
  • Transferring the bulk of the Life Fund, primarily comprising the policyholders’ hard earned savings, to the stock market investors including the foreign investors, amounts to the government breaching the trust reposed in it by the policyholders. In addition, the very idea of the government divesting a portion of its 100% equity to private investors, would also amount to relinquishing its legitimate role of being a trustee, a prospect that violates the legislative intent of creating the LIC in the first instance. Has the MOF applied its mind to these crucial aspects at all?
  • The entry of stock market investors including the foreign investors, who are primarily profit-seekers, would inevitably necessitate a fundamental change in the role of the LIC, a shift from its erstwhile role of a social security provider to that of a mere profit generator, benefitting a handful of speculative investors. Has the MOF thought about this at all? Has the MOF informed the Cabinet, the Parliament and the States of this and its likely repercussions for the disadvantaged sections of the society?

Since your Ministry has neither acknowledged my letters, nor answered these questions, I am forced to infer that your Ministry is deliberately keeping the policyholders and the public in the dark and recklessly moving ahead with the IPO, which amounts to defrauding millions of policyholders who perhaps constitute around 1/3rd of the country’s households.

Since your Ministry has not cared to take the public into confidence, I have placed copies of my last four letters in the public domain, accessible at the following web addresses, for the people to be aware of what a government elected by them is doing behind their back, so that a wider public debate may take place.

Meanwhile, there seems to be no end to the missteps taken of your Ministry, as the Ministry has arbitrarily reduced the valuation of the LIC w.r.t an earlier estimate provided by a DIPAM-appointed valuer, an aspect that has been comprehensively analysed by an eminent journalist, Shri V Sridhar in his highly insightful and professionally argued article, accessible at the following weblink,

It is abundantly clear that, among the several other egregious approaches adopted by the government that hurt the interests of the policyholders, the interests of the States and the wider public interest, the following observation made by Shri Sridhar should immediately open the eyes of the Prime Minister, the Parliament and the public at large on the makings of a huge scam about to arise out of the IPO and the way your Ministry, along with the DIPAM officials and the senior management of the LIC have handled this matter.

the Modi government is banking on sharp gains for speculative sharks who would exit after extracting a premium that directly arises from losses to the government and millions of policyholders. For a government that has been forever in feel-good mode, this is perfectly understandable. But, for millions of Indians, the IPO planned for May 4 would mark the beginning of the demolition of one of India’s most popular institutions”

In other words, with the reported relaxations in the lockin requirement for the shares, your government has opened the floodgates to deep-pocketed, speculative stock market investors, including anchor investors controlled by the foreign governments, to profiteer by buying undervalued equity shares of the LIC, robbing millions of LIC’s policyholders of their hard earned savings and depriving the nation of its precious resources, to syphon off the same overnight to unknown destinations. The fact that the government has ill-timed the IPO, coupled with a clear signal to the speculative investors to buy and pocket huge premiums from reselling the shares, is enough to suggest the motives underlying the same. In my view, it is going to be one of the most contentious insurance scams of independent India!!

In 1956, the then government led by no other than Prime Minister Nehru, eminently advised and guided by the then distinguished Finance Minister, Shri C D Deshmukh, nationalised the private life insurance companies and created an extra-ordinary, unique public institution in the form of the LIC as the country’s largest social security provider, mainly for the reason that the private insurers were involved in unfair trade practices, hurt the policyholders’ interests and operated against the public interest.

The averments made in the Parliament on that occasion by Shri Deshmukh succinctly described the then government’s vision of how the newly created LIC should evolve. At the cost of repetition, Madam Finance Minister, may I recall the same below to remind you of how your distinguished predecessor had then thought of a great institution and given shape to it?

The concept of trusteeship, which should be the cornerstone of life insurance, seemed entirely lacking (in private insurance companies). Indeed, most management had no appreciation of the clear and vital distinction that exists between trust moneys and those which belong to joint stock companies

the (insurance) business must be conducted with the utmost economy and with the full realisation that the money belongs to the policyholder. The premium must be no higher than Is warranted by strict actuarial considerations. The fund must be invested so as to secure the maximum yield for the policyholders that it may be possible to secure, consistent with the safety of the capital. It must render a prompt and efficient service to its policyholder and by its service make insurance widely popular. Finally, the management must be conducted in a spirit of trusteeship

Insurance is an essential social service which a welfare State must make available to its people and the State must assume responsibility for rendering this service once it is clear beyond reasonable doubt that it cannot be provided in any other manner….  So, while it is the failure of the general run of insurance companies to live up to the high traditions demanded of them that has led the Government to take this step, I would like to emphasise that nationalisation in this field is in itself justifiable. With the profit motive eliminated, and the efficiency of service made the sole criterion under nationalisation, It will be possible to spread the message of insurance as far-and as wide as possible, reaching’ out beyond the more advanced urban areas and into hitherto neglected, namely, rural areas.”

The investments would be made, it is needless to say, primarily in the interest  of the policy-holders to whom the money belongs, but the interests of the community at large which would be vitally affected by the manner in which these vast sums are utilised and invested would be an equally important consideration……Incidentally, it might be noticed from clause 28 that at least 95 per cent of the surplus disclosed is to be allocated to the policy-holders. And 5 percent to the share-holders, that is, the Corporation. This is only the minimum and I am sure later on this proportion could be increased with the result that the State’s share will be correspondingly reduced”

By putting the neck of this great institution under the guillotine of disinvestment, your government in one mindless stroke would be effacing Shri Deshmukh’s extraordinary vision, dismantling the unique institution he had created and committing a serious breach of trust as far as the policyholders and the public are concerned. In one thoughtless move, your Ministry would be permanently destroying the concept of “trusteeship”, robbing the policyholders of their savings and funds to enrich a few speculative, deep-pocketed, domestic and foreign investors, instead of furthering the policyholders’ interests. Your Ministry would be further reneging on the State’s welfare mandate stipulated in the Directive Principles of the Constitution, subjecting the LIC’s future operations to the regressive profit motive of a handful of speculative investors, than for the wider good of the public. The proposed disinvestment would also force the LIC to shift from its present role, that of taking insurance far and wide, to rural and remote areas, to the most disadvantaged sections, to that of a mere provider of an undue largsee to a handful of speculative investors.

In short, by subjecting the LIC to disinvestment, your Ministry would be, once for all, dismantling the Nehru-Deshmukh envisioned institution, destined then to play the role of a social security provider for the disadvantaged households of the country.

Building institutions require vision, effort and time. Destroying them is unfortunately far, far easier, an option which your Ministry seems to have wantonly chosen, not for promoting the public interest but for enriching a handful of affluent, speculative domestic and foreign investors, who care more for their own profits than for the well being of the nation and its people.

It is certainly a sad commentary on the evolution of statesmanship in Indian politics!

In my view, the LIC IPO as mooted by your Ministry would not only amount to committing fraud on the policyholders but it would also touch many other crucial aspects of public policy.

Issues such as undervaluation of the LIC, as pointed out by Shri Sridhar in his article cited and the fraudulent renting out of the policyholder’s accounts and the moneyed investors stealing their personal information over several months, as widely reported, involve acts of malfeasance tacitly facilitated by your Ministry. They call for expeditious regulatory probes by the two bodies, SEBI and IRDA. In addition, they also call for an independent enquiry by a senior judicial authority immediately.

Pending such investigations, I earnestly caution your Ministry not to go ahead with the proposed IPO.

I would also request you to place the contents of this letter before the Union Cabinet and the Parliament for their information and appropriate response, without any further delay.

I am circulating this letter widely among the public, to the States, to the legislators and to the other stakeholders, as well as the different political parties, for generating a wide public discussion and a debate, which are the essential ingredients of any responsible democracy.


Yours sincerely,

E A S Sarma

Former Secretary to the Govt of India


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