The LIC share sale is a plunder of public wealth
The LIC share sale formally begins on May 4. It was the 1993 Malhotra Committee that recommended selling 50 per cent of the LIC's shares. It took nearly three decades for this privatisation proposal to be put into practice, so great was the resistance inside and outside Parliament. LIC employees and agents can be proud that they were at the forefront of it. What is under way today is the preparation to carry this fight forward by also organising and mobilising the policyholders.
If the LIC shares had been sold at the price at which the shares of other private insurance companies were sold, the government would have got at least Rs 50,000 crore. But the central government finally decided to sell the shares cheap: at Rs 949 a share instead of Rs 2,200. By current calculations it will get only Rs 21,000 crore. It is clear that the LIC share price was kept this low because of the government's determination to make its first share sale a success whatever the loss. The LIC management itself has made clear that investors demanded a lower share price in discussions with them.
To stop a few from monopolising shares when a company first sells them, SEBI itself divides investors into separate categories. At the stage of registering the IPO, the percentage of shares reserved for each category has to be stated. A special feature of the LIC IPO was that separate reservations were made for employees and policyholders too, to win them over. Some discounts on the price have also been announced for both groups. But to buy shares you have to link your PAN with Aadhaar and open a demat account. All this will be very difficult for the great majority of LIC policyholders. Moreover, attempts by brokers to open demat accounts on a large scale in the names of policyholders and buy shares, to grab the discount, have also come to light.
31 per cent of the shares are for retail investors, 13 per cent for non-institutional investors and 18 per cent for qualified institutional investors. The most important category is the anchor investors, who have been allocated 27 per cent. These are large investing financial institutions. The usual practice is to hold separate discussions with such institutions, which buy and sell shares on a large scale, and reach an understanding on the share sale. They can include foreign companies and companies registered in the country such as mutual funds.
According to today's newspaper reports, only 71 per cent of the anchor book has been allocated. With the share price kept so low, I still think there will be no difficulty in selling it out fully. Reports indicate that investment from abroad is very low. Foreign investors are in a rush to pull out of India. The lead article in the Business Line newspaper explains that this is a serious situation. They are not interested in bringing foreign currency into India from outside. But investment companies in India in which they have stakes have taken an active part in the LIC share sale.
This is a great plunder of public wealth. The LIC share sale is being carried out by presenting part of the income that policyholders should receive as bonus in the future as the future income of shareholders.
The LIC authorities' explanation is that only this price can be had in the present situation of the Ukraine war. Citing the war and the like, the government has surrendered to pressure from big investors. Our simple question to those who say there is no other way is this: why not wait a few more months for today's investment climate to change? Would the country suffer some irreparable loss in the meantime?
Now 3.5 per cent of the shares have been put up for sale. Without any investment, and without creating future liabilities, the Government of India is getting more than Rs 20,000 crore. It has tasted the sweetness. So further sales can be expected before long. But the LIC protection movement is trying to raise LIC privatisation as a political issue at the national level, in a way that ensures this sale will be the last.
Com. T M Thomas Isaac