By N. Sundaramurthy
LIC is continuously in the news, not for good reasons. Renowned economists and media analysts are expressing reservations about the LIC’s investments during the last couple of years. These criticisms cannot be dismissed as rubbish and pushed beneath the carpet. The LIC’s finances are under pressure that are coming from Union government. A serious doubt is raised whether LIC has control over its investments. Financial assets of LIC belong to the people of India and they cannot be frittered away because of political considerations.
As on financial year ending March 2018, the total assets of the LIC have exceeded Rs.28.45 lakh crore and its market share, in terms of number of policies, is 75.67 percent. The Available Solvency Margin (ASM) of LIC as on March 31, 2018 is of the order of Rs.1.30 lakh crore. The money in the LIC belongs to the policy holders, the hard earned savings of the people paid in the form of premium. LIC is the pride of India. And it must continue to be so. Some of the concerns need to be looked into carefully. The banks are under severe crisis mainly due to frauds and staggering piles of NPAs. Instead of taking action as per law against the defaulters, the government is looking at different alternatives which are in reality counterproductive. LIC can be directed to subscribe to recapitalisation bonds to the extent of Rs.1.35 lakh crore, to pump money into the stressed up PSBs.
Secondly, LIC is under instruction to own majority or controlling stakes in the sick IDBI Bank, which has a huge NPA of Rs.55,000 crore, the highest among all the banks. Recently, LIC has been asked to invest more capital in the private infrastructure development company, IL&FS Ltd., in which it already has 25.34 percent stakes. IL&FS is in serious financial crisis with a debt burden of Rs.91,000 crore. LIC is turning out to be a milch-cow. Instead of using peoples’ money for peoples’ welfare, the peoples’ money is used for private loot. The IL&FS Ltd’s debt burden of Rs.91,000 crore is three times the amount, the Modi government has gifted to Anil Ambani’s firm in Rafale deal. Why this generosity for a private company that is going to cause financial instability in the economy? In 2007, when Narendra Modi was chief minister of Gujarat, projects in the state worth Rs.70,000 crore were assigned to the IL&FS Ltd. Till date those projects have remained dormant. IL&FS Ltd. has more than 160 subsidiaries of which only six are registered. Taking over IL&FS by the government and pumping more and more of LIC’s funds in it may create a volatile situation. LIC’s valuation surplus and dividend to government and bonus payable to loyal customers may suffer repercussions.
The country is racing towards a serious economic crisis and in the process LIC is bound to be hurt. Renowned economists have compared IL&FS to Lehman Brothers that triggered the global financial crisis in 2008
As a result of the risky investments, the LIC’s NPAs are steadily rising which is a matter of alarm. The following data is revealing.
Government says that at any cost IL&FS has to be kept afloat. It is a NBFC. What were the government and the RBI doing all these years, when the finances of the IL&FS were in trouble? Now, the government has superceded the Board of Directors of IL&FS and has appointed a new board with banker Uday Kotak as the executive chairman. There is more to it than what meets the eye! LIC is the largest domestic Institutional Investor in India and every year it invests in the equity market something like seven to eight billion US dollars. LIC has stakes in 300 listed companies. In the current year (CY18) some of the largest holdings of LIC have seen their value erode by over 50percent. The following data is published in The Hindu dated October 11, 2018.
The LIC may try to comfort us by saying its investments are safe, prudent, conservative, long-term and it buys shares when prices are cheap. And that the size of LIC’s assets and the continuous flow of fresh money may take care of the market fluctuations. Still, there can be cause for worry. We have seen how demonetization flopped. We are seeing how government is handling Rafale deal, endangering the security of the nation. An internal document of Dassault Aviation showed that the joint venture with Anil Ambani-led Reliance Defense Ltd., was an “obligatory trade-off” and “mandatory” for the Rs.59,000 crore deal. It was quid-pro-quo! It is evident that Modi government forced French to give the defence contract to Ambani. The economic security of the country and it’s sovereignty will be in peril if government persists with its sinister agenda of weakening LIC by gambling with its funds and in the longer run, use it as a play to privatise LIC. That is what the international financial capital is waiting for.
LIC’s top executives say that LIC’s investments are sound. This is only a stock reply. Four years back, ONGC was a highly profitable and cash-rich company. But today it is in dire streets. The culprit was the Central government and it’s regressive economic policies. We are expressing concerns about LIC’s investments not to raise a scare or to tarnish its image. We love LIC; it is the back-bone of India’s economy. It is a builder of nation. It upholds and serves the country’s economic sovereignty. LIC must be allowed functional autonomy. We need to speak truth while addressing the power that be.
The finance minister Arun Jaitley has gloated that “LIC would be the country’s most valued company, if listed (in the Stock Exchange)”. Is it an indication of the likelihood of floating the LIC? The Insurance Act is amended and government has directed the PSGI companies to go public. IPOs may feed the government coffers. But, they will grossly dilute the objectives of nationalisation and will alter the character of the public sector institutions. It is sad, even shocking, that nobody has protested. (IPA Service)
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