The government's policy of selling its stake in LIC is like cutting down a fruit-bearing tree

- In addition to social responsibilities, a life insurance company has become a savior for the government in difficult times

To make up for the shortfall in the exchequer, the central government has for the last few years been raising funds by partially selling its stake in public sector undertakings. In public sector undertakings, the government has now announced the sale of stakes in banks and Life Insurance Corporation of India (LIC). The government is currently in the process of privatizing two public sector banks and selling a small stake in LIC in the current financial year.

After the nationalization, the demand for the banking system increased and so did its branches and operations. Banks began to reach out to remote areas of the country. As a result of nationalization, deposits and savings in banks began to increase sharply and this public money was used to fill the growing fiscal deficit of the country. Following nationalization, commercial management of banks declined and political interference increased. Lack of personal interest began to affect the profitability of banks. Due to political interference, the freedom of decision-making of banks was almost taken away and businesses and individuals with political affiliations were forced to lend money. This led to a capital erosion, which has been rampant for public sector banks since the advent of new private banks in the Indian economy in the 1990s and they are facing competition. As the banks weakened over time, the government has now started the exercise of handing them over to private hands. The privatization of public sector banks is understandable, but the government's policy of partially selling its stake in financially and otherwise sound state-owned LICs seems to be cutting down the fruit-bearing tree.

With the privatization of two public sector banks likely to be protracted, the government is currently moving ahead with the sale of stake in LIC and plans to do so in the last quarter of the current financial year, January-March 203. While the government is moving ahead with LIC's disinvestment program, there is also a murmur as to why the government should sell its stake in LIC, which is financially strong and supportive of the government. The valuation of LIC due to Corona is currently proceeding at a slow pace.

By the end of last financial year, LIC had an estimated investment of Rs 3 trillion in the stock market. Taking into account the income from these investments and investments in other real estate, LIC's valuation exceeds a country's annual budget. It is currently being evaluated to bring LIC's IPO. As per the data released in 2012, LIC's total assets in that year stood at Rs 31,114 lakh while its net income stood at Rs 5 lakh in that year. Despite the huge assets, the government is in a hurry to bring LIC's public offering in the current year itself.

The government has made it clear that it does not want to sell some of its equity from LIC, nor has it been privatized. It would not be wrong to say that the sale of a small stake in LIC will pave the way for the entry of private entrepreneurs into the country and that in the near future, this sound life insurance company will not be completely in private hands.

There is no reason to believe that the sale is taking place as a result of the financial burden incurred by Corona as the government had already planned to sell equities from LIC.

Given the support it has provided to the government in its difficult times, in addition to its social responsibilities, the question of whether the plan to sell its stake in the LIC is truly appropriate remains unanswered. Since its inception in 1918, LIC has instilled a sense of confidence in the people of the country that today, despite having as many as seven private life insurers against it, LIC's business has remained strong. Of the life insurance policies issued, LIC accounted for 51.09 per cent in March 2011.

With a balance sheet of Rs 21 lakh crore, LIC is today the second largest government financial institution in the country after SBI. LIC has also been the largest institutional investor in the country's capital market. In addition, it has been investing heavily in social sectors such as electricity, housing, railways, water supply, etc.

While LIC is helping the government by providing premiums to the people of the country for the economic development of the country in addition to life insurance services, the move to sell even a small portion of it is due to lack of business acumen in the government.