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Most Disadvantaged Policy Holders to Lose Out in LIC IPO
E.A.S. Sarma
Date: 11/04/2022
To
Smt Nirmala Sitharaman
Union Finance Minister
Dear Smt Sitharaman,
Please refer to my letter dated 6-3-2022 addressed to you on the manner in which the proposed LIC IPO would do gross injustice to the policy holders of the LIC, largely belonging to the SCs/STs/OBCs (published in Countercurrents.org.)
As apprehended by me in my letter, it appears that not more than 8 Crores of policy holders out of a total of 32 Crores will now be able to open demat accounts, which is a condition precedent to their being eligible for investing in acquiring equity shares in the Corporation, through a highly restricted policy holders’ window of 10% (Foreign investors get a 20% window!). In other words, 75% of the policy holders, largely belonging to the most disadvantaged groups, would be left out of the LIC IPO!
Taking note of the fact that almost 100% of LIC’s “Life Fund” has been contributed by its policyholders, to hand over the bulk of it to speculative stock market investors, in my view, is nothing but the government committing an outright breach of the public trust!
In this connection, I have just come across a disturbing news report (https://www.motilaloswal.com/ article-details/lic-ipo-triggers-a-frenzy-for-renting-of-demat-accounts/5307) on how the more affluent, speculating, profiteering stock market investors are openly exploiting the “policy holders’ window” in the LIC IPO, by “renting out” the policy holders’ accounts and opening benami demat accounts on their behalf. Apparently, they are throwing crumbs at the policy holders to gain a foothold onto their accounts and their personal data, which in itself constitutes a serious breach of privacy. It is clearly a case of the stock market investors using their money power to exploit the unwary small policy holders, whose interests your Ministry ought to safeguard.
For your ready reference, I have extracted below some relevant portions of the news report:
“brokers are prepared to pay anywhere between Rs 2,000 and Rs 4,000 to LIC policyholders to create demat accounts and rent them for IPO applications in order to control the cheap quota shares market. Because many of these brokers are also LIC agents, they have immediate access to policyholder databases. After the terms of the IPO price range become known, the charge may further climb. Brokers will provide funding for the IPO filing, according to sources …..LIC has around 32 crore policyholders, and brokers plan to access at least 5-10% of this pool, who they estimate have not yet opened a demat account. Large brokers have even begun placing adverts in newspapers to entice LIC policyholders to register demat accounts with them.…Brokers in Mumbai predict that between one and three crore new demat trading accounts would be established by LIC policyholders, even using the most cautious projections. The current flurry of initial public offerings has lifted the total number of demat accounts to almost 8 crore, up from roughly 3.6 crore in 2018-19.”
Certainly, this points to a possible fraud committed on the small policyholders in the proposed LIC IPO, a fraud, if established, would amount to a gross breach of the trust that the Parliament has always reposed in the government as a trustee of the policy holders.
If such a fraud is indeed being committed, its roots lie in the approach adopted by your Ministry to disinvesting the LIC.
First, your government has brushed aside the unwary policyholders’ interests altogether and is proposing to transfer the bulk of their hard earned savings and resources to a handful of stock market investors, placing the latter at an undue advantage. Second, your government has chosen to ignore several of my cautionary letters addressed to you in the past on the inherent deficiencies in the very idea of disinvesting the LIC and, for reasons best known to you, you have chosen to turn a blind eye to the breach being committed to the trusteeship relationship that exists between the government and the policy holders.
When the government’s role in so far as the LIC is concerned is that of a trustee of the policy holders, would it not amount to the government callously relinquishing that trust by disinvesting a portion of its equity? Such relinquishment of trusteeship is prima facie violative of the rationale of setting up the LIC in the first instance.
I was trying to understand the legislative intent underlying the original LIC Act enacted in 1956, by going through the then Parliamentary proceedings on the subject. The statements made at that time by the then Finance Minister, Shri Chintamani Deshmukh are truly visionary.
I have reproduced below some of the more important portions of Shri Deshmukh’s statements on the role expected from the LIC as an institution meant to provide a social security cover for the disadvantaged sections of the population. (https://eparlib.nic.in/bitstream/123456789/58691/1/ Eminent_Parliamentarians_Series_Chintaman_Deshmukh.pdf):
“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.”
The concepts of “trusteeship“, “maximising the yield for the policyholders”, “promotion of a welfare state” as provided in the Constitution, “elimination of the profit motive driving the role of the LIC”, “reaching out to the rural areas in insurance” and the idea that the “LIC’s money belongs to its policyholders” formed the primary basis for enacting the LIC Act. These were the ideas that were taken note of by the Parliament when it granted approval for the LIC Act. The latest LIC IPO makes a mockery of each and everyone one of these profound ideas and callously seeks to dismantle in one stroke the sacred edifice of a State sponsored, policyholders’ LIC that was visualised by the then Finance Minister.
Should you become a willing party to transforming the LIC from its originally expected exalted role of a social security provider to that of an ordinary insurance company merely meant to generate profits for the few stock market investors, progressively forsaking its role of being an instrument of the government for promoting the welfare of the people?
I am not sure whether the competent civil servants who are running the Department of Investment and Public Enterprises Management (DIPAM) within your administrative purview have adequately briefed you on these facts, before you endorsed their highly dubious proposal to disinvest the LIC. If not, I suggest that you direct them to take out the relevant Parliamentary proceedings and appropriately apprise the Prime Minister and the Union Cabinet urgently. Informed decisions cannot be taken on the basis of ill-informed bureaucratic advice.
I am sure that the Union Cabinet, had it been privy to the above facts, would have hesitated to approve the idea of disinvesting the LIC.
If your government still chooses to go ahead with the LIC IPO, it will amount to a total climb down from the vision of the then Finance Minister, Shri Deshmukh and the vision of the then Prime Minister, a steep fall from the concept of the LIC being the largest social security provider in the country to a run-of-the-mill LIC driven by a few affluent stock market investors, grabbing the policyholders’ valuable funds and profiteering at their cost!
On the specific report that benami investors are renting out the policy holders’ accounts and data, which has very serious, far reaching consequences, I would demand an independent enquiry by a member of the higher judiciary, not a routine enquiry by your officials.
May I appeal to you to ponder over what I have said in this letter and the previous correspondence on the subject and take an immediate decision to revoke the proposal to disinvest the LIC?
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to Government of India
Visakhapatnam
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LIC IPO – Gross Injustice To The Smaller LIC Policy Holders
E.A.S. Sarma
Date: 16/04/2022
To
Smt Nirmala Sitharaman
Union Finance Minister
Dear Smt Sitharaman,
Please refer to my letters dated 6-3-2022 & 11-4-2022 addressed to you on the manner in which the proposed LIC IPO would do gross injustice to its policyholders, largely belonging to the SCs/STs/OBCs (both published on Countercurrents; letter of 4 April published above – Eds).
In my correspondence, I had pointed out again and again how the IPO would place millions of small policy holders, especially those belonging to the SCs/STs/OBCs at an undue disadvantage, to benefit a handful of affluent, speculative, profiteering stock market investors.
It is bizarre that your Ministry’s IPO proposal should restrict the investment window for the policy holders, the de facto owners of LIC’s fund, to a mere 10%, and provide the remaining 90% window to those profiteering stock market investors, including a 20% window for foreign investors. There cannot be any graver travesty of justice meted out to the millions of voiceless small policyholders, than this.
In particular, I had brought to your notice some news reports that suggest a few deep-pocket investors clandestinely “renting out” the small policyholders’ accounts and their personal data, infringing every norm of privacy of such information, by throwing crumbs to them, to misappropriate even that 10% restricted window, to lay claim on their legitimate resources and profiteer at their cost. I demanded in my last letter that an independent enquiry by a member of the higher judiciary be ordered and, till such time the facts were ascertained, the Finance Ministry should pause the LIC IPO move. I feel disappointed that you have neither acknowledged the receipt of my letter nor acted on it.
The more recent news reports on the manner in which your Ministry is indiscriminately proceeding in the matter indicate a total surrender on the Finance Ministry’s part of the policyholders’ funds to large foreign investors such as Abu Dhabi Investment Authority, Singapore-based GIC, three Canadian pension funds and Qatar Investment Authority among other sovereign wealth funds (https://economictimes.indiatimes.com/industry/banking/finance/lic-ipo-centre-wooing-sovereign-pension-funds/articleshow/90870857.cms).
Most of these sovereign wealth funds, as the name suggests, are controlled by the foreign governments, who are more interested in maximising the short-term returns to those funds than the long-term well being of the vast disadvantaged sections of LIC’s policyholders. It is the latter that have elevated the LIC to its present glorious height by putting in their hard earned savings, which are now being nonchalantly handed over to these newcomers from foreign lands.
Your ministry owes an answer to the nation on the following questions.
- Would such deep-pocket foreign funds and foreign investors care for continuing the LIC as a unique social security provider for the marginal households in the country?
- Would not opening the doors of the policyholders’ Life Fund to foreign investors imply allowing the latter to syphon off a significant portion of the policyholders’ funds to overseas destinations?
- Would not these overseas investors and the affluent domestic investors insist on the LIC gradually moving away from its role of not only a social security provider but also a dominant lender of funds for financing the States’ infrastructure and their social sector schemes?
- Does this not imply that, by divesting its own equity share that symbolises its trusteeship relationship with the policyholders and its welfare mandate under the Constitution, the government would be relinquishing its statutory role that was envisaged when the LIC was created by the Parliament more than six decades ago?
- Would not divestment of the government equity shares also lead progressively to the stock market investors pressurising the government into diluting the sovereign guarantee provision under Sec 37 of the LIC Act? If it were to be so, would not the LIC be then progressively withdrawing its reach from the rural and the remote areas, and the smaller households, a prospect that was never envisaged when the legislature created the LIC?
The then Prime Minister Nehru and the then Finance Minister Deshmukh, whose foresight and vision had led to the creation of a unique institution of the LIC as a social security provider for the disadvantaged people of the country with such a vast reach, would never have imagined even remotely that their successors six decades later would wantonly dismantle it without batting an eyelid, a truly disappointing commentary on the evolution of statesmanship in the country.
I would once again appeal to the government not to rush into divesting the LIC.
Public good and public welfare lie in what is beneficial for the voiceless majority of the country, not in myopoic policies that allow an advantaged minority to profiteer at the cost of the disadvantaged majority.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to Government of India
Visakhapatnam
(Both letters – Courtesy: Countercurrents.org.)
