Skip to main content

LIC divestment: Valuation method 'not revealed' to policyholders, Article 19 violated

Counterview Desk 

Peoples’ Commission on Public Sector and Public Services (PCPSPS) in a letter to the SEBI chairman Ajay Tyagi has said that SEBI should “exercise utmost care and consideration in the ongoing Initial Public Offer (IPO) of the Life Insurance Corporation of India (LIC) for safeguarding the interests of the policyholders and the society for whom the LIC carries on its activities.
Insisting that “acting in haste in pushing through the process of listing the LIC in the stock-markets would surely be against public interest”, commission lists what it calls “severe lapses in the government's approach to the disinvestment of the LIC”.
Consisting of former civil servants, academics, lawyers, business professionals, trade union leaders and activists, it, says the LIC’s disinvestment is sought to be undertaken by setting aside the unique role played by it “as the single largest social security provider in the country for the disadvantaged sections of society.”
Pointing out that disinvestment would especially hit the “those holding insurance policies of smaller ticket sizes”, who are spread across the country, both in urban and rural areas”, the commission insists, these policyholders have contributed immensely to the growth of the LIC over the last several decades; in fact, it is they who have funded the LIC”, with government have virtually made “no financial contribution” to it.

Commission’s observations:

1. Considering that it is the policyholders who have overwhelmingly contributed to the growth of the LIC since its inception, the commission feels that they have a legitimate claim on LIC’s equity base. The fact that LIC’s huge asset base has been built through policyholder participation justifies such a perspective. At best, the sovereign guarantee provided by the government to LIC's policyholders may be notionally valued and reckoned as a part of LIC’s equity capital.
The government provided the initial equity capital of Rs 5 crore in 1956 when the LIC was born. The equity base was expanded to Rs 100 crore in 2011; but the point to note is that even this expansion was made possible by funds provided by policyholders. Most recently, government’s equity in LIC has been expanded to Rs 6,600 crore, with the obvious intention of facilitating the proposed IPO.
The commission wishes to highlight the fact that the expansion of LIC into one of the world’s biggest life insurers has been based on contributions made by generations of policyholders, many of the ordinary people who have invested their life savings in this unique organisation.
2. If the above position is not reflected appropriately, it would result in private investors gaining undue control of the affairs of the LIC, to the detriment of the interests of the genuine stakeholders, namely, the policyholders, the majority of whom have invested their hard-earned household savings in the LIC.
The proposal of the government to allow both domestic and foreign investors to buy LIC's equity, though limited in the first stage, will set in motion an unfair process that deprives policyholders of their legitimate share in LIC's equity base.
3. In view of the widespread public criticism of the proposal to disinvest LIC's equity, the government has opened a severely restricted window of 10 per cent for the policyholders to mislead them into silence. The share being offered to policyholders bears no relationship whatsoever to their legitimate status as the prime promoters of LIC's growth since its inception. 
A proposal such as this one, which places policyholders who are the largest stakeholders in the LIC in an unfair position vis-a-vis the small segment of elite investors, is prima facie violative of the principles of natural justice and as such, is patently illegal.
4. Media reports indicate that the Department of Investment and Public Asset Management (DIPAM), which is processing LIC's disinvestment proposals, has entrusted the task of valuing the institution’s “embedded value” to a private foreign actuarial consultancy.
The government has also engaged investment bankers to act as advisers as a prelude to submitting the IPO documents for listing. It appears that the Ministry of Finance and DIPAM are trying to rush through with the IPO process in order to hasten the disinvestment process at any cost. The commission is extremely perturbed by recent media reports that the government has asked SEBI, the market regulator, to hasten its vetting of the Draft Red Herring Prospectus.
This, the commission feels, is highly inappropriate. Moreover, to date, the methodology of valuation and the related details have not been made available to either the policyholders or the public at large, who are entitled to such transparency under Article 19 of the Constitution and under Section 4 of the Right to Information Act, 2005. In the absence of adequate public disclosure of the manner in which the LIC has been valued, the whole IPO process would appear vitiated.
5. There are a few other basic public concerns about the valuation process. For example, has the valuer considered the market value and replacement of LIC's vast range of investments and its real estate assets? How does one value the public trust reposed in the LIC and the public goodwill it enjoys? What is the social value of the LIC in its role as a social security provider?
Policyholders are entitled to 95% of the annual surplus generated by LIC because they are the dominant stakeholders
LIC being much more than a mere corporate entity, valuing it from society's point of view is far more important than how a handful of stock market investors evaluate its worth.
Apparently, the valuation advisers are trying to assess its “embedded value” i.e. as perceived by the investors at a given point in time but that concept, which is largely stochastic in nature, is in itself highly subjective, certainly having no relationship whatsoever with the way the policyholders perceive it and the way the public at large views it. The commission fears that there may be gross undervaluation, which would be to the detriment of the interests of millions of policyholders.
6. The LIC plays the role of the single largest social security provider in the country and is a dominant promoter of the idea of life insurance in India. The funds generated by it from the policyholders' contributions and its other income finance many social sector projects. It is in the nature of public trust, enjoying the goodwill of the people.
The unjust entry of the stock market elite investors as equity holders of the LIC will tend to alter the Corporation's role drastically, imposing huge social costs including indirect losses to the policyholders. At present, the policyholders are entitled to 95% of the annual surplus generated by LIC, rightly so because they are the dominant stakeholders.
However, this position will be altered to their disadvantage once LIC is listed and the elite investors step in as shareholders. In particular, it would run counter to the Corporation's role as a part of the welfare state as provided in the Directive Principles of the Constitution, since the LIC set up under Article 19(6)(ii) is to be deemed to be an arm of the government under Article 12.
7. LIC being a unique institution, one of its kind, the commission feels that SEBI should examine the government's proposal with utmost diligence, as otherwise, it will be failing in its obligation to safeguard the public interest, as the LIC's role is largely that of a social security provider, accountable to its largest body of stakeholders, namely, its vast number of its policyholders who constitute a significant proportion of the households in India.
Not taking the policyholders and the public at large into confidence, who cannot compete with the few elite stock-market investors, would be grossly unfair. SEBI has the statutory obligation to protect the interests of the public at large as well as LIC's policyholders, who are notionally the dominant shareholders of the Corporation.

Comments

TRENDING

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

How lead petitioner was rendered homeless when GM mustard matter came up in SC

By Rosamma Thomas*  On January 5, 2023, the Supreme Court stayed a December 20, 2022 direction of the Uttarakhand High Court to the Indian Railways and the district administration of Haldwani to use paramilitary forces to evict thousands of poor families occupying land that belonged to the railways.  Justice AS Oka remarked that it was not right to order the bringing in of paramilitary forces. The SC held that even those who had no rights, but were living there for years, needed to be rehabilitated. On December 21, 2022, just as she was getting ready to celebrate Christmas, researcher Aruna Rodrigues was abruptly evicted from her home in Mhow Cantonment, Madhya Pradesh – no eviction notice was served, and nearly 30 Indian Army soldiers bearing arms were part of the eviction process. What is noteworthy in this case is that the records establishing possession of the house date back to 1892 – the title deed with the name of Dr VP Cardoza, Rodrigues’ great grandfather, is dated November 14

Buddhist shrines were 'massively destroyed' by Brahmanical rulers: Historian DN Jha

Nalanda mahavihara By Our Representative Prominent historian DN Jha, an expert in India's ancient and medieval past, in his new book , "Against the Grain: Notes on Identity, Intolerance and History", in a sharp critique of "Hindutva ideologues", who look at the ancient period of Indian history as "a golden age marked by social harmony, devoid of any religious violence", has said, "Demolition and desecration of rival religious establishments, and the appropriation of their idols, was not uncommon in India before the advent of Islam".

Savarkar 'criminally betrayed' Netaji and his INA by siding with the British rulers

By Shamsul Islam* RSS-BJP rulers of India have been trying to show off as great fans of Netaji. But Indians must know what role ideological parents of today's RSS/BJP played against Netaji and Indian National Army (INA). The Hindu Mahasabha and RSS which always had prominent lawyers on their rolls made no attempt to defend the INA accused at Red Fort trials.

Tax buoyancy claims when less than 4% Indian dollar millionaires pay income tax

By Prasanna Mohanty  In FY18, the last year for which disaggregated income tax data is available, only 29,002 ITRs declared income above Rs 5 crore, while Credit Suisse said India had 7.25 lakh dollar millionaires (the wealth equivalent of Rs 8 crore and above) that year. Often enough, the Centre claims that demonetization in 2016 raised tax collections, improved tax efficiency, and expanded the tax base. Now RBI Monetary Policy Committee (MPC) member Ashima Goyal has also joined their ranks, attributing the “claims” of rising tax collections in the current fiscal year to “tax buoyancy” brought by the demonetisation . Do such claims have any basis in official records? The answer is unequivocal. The budget documents show the tax-to-GDP ratio (direct plus indirect tax) increased from 10.6% in FY16 (pre-demonetization) to 11.2% in FY17, remained there in FY18 (demonetization and GST fiscals), and then fell to 9.9% in FY20. In FY22, it improved to 10.8% and is estimated to drop to 10.7% in

Cyrus Mistry, PM Modi’s brother: What do these accidents have in common? Merc!

By Rosamma Thomas*  In September 2022, in an accident at Palghar near Mumbai, Cyrus Mistry, former chairman of the Tata Group, died in a road accident . On December 28, 2022, a road accident in Mysore left one of Prime Minister Narendra Modi’s brothers injured. What is common in these accidents? The car that crashed into the divider on the road, in both these cases, was manufactured by “prestigious” German manufacturer Mercedes Benz. One former dealer of Mercedes Benz cars in India has been raising issues of the threat to the lives of those riding these cars for many years now. Cama Motors, among the oldest dealers of foreign cars, having started business in pre-independence India, noted over 10 years ago that Mercedes Benz was indulging in corrupt practices . The cars are currently priced between Rs 41 lakh and Rs 2.92 crore in India; few people realize that the pride of owning a Merc comes at considerable risk to life. Cama Motors carefully documented several of the flaws on a websi

Gandhian unease at Mahadev Desai book launch: Sabarmati Ashram may lose free space

By Rajiv Shah  A simmering apprehension has gripped the Gandhians who continue to be trustees of the Sabarmati Ashram: the “limited freedom” to express one’s views under the Modi dispensation still available at the place which Mahatma Gandhi made his home from 1917 to 1930 may soon be taken away. Also known as Harijan Ashram, a meeting held for introducing yet-to-be-released book, “Mahadev Desai: Mahatma Gandhi's Frontline Reporter”, saw speaker and after speaker point towards “narrowing space” in Gujarat for Gandhians (as also others) to express themselves. Penned by veteran journalist Nachiketa Desai, grandson of Mahadev Desai, while the book was planned to be released on January 1 and the meeting saw several prominent personalities, including actor-director Nandita Das, her scholar-mother Varsha Das, British House of Lords member Bhikhu Parekh, among others, speak glowingly about the effort put in for bringing out the book, exchanges between speakers suggested it should be rele

Civil rights leaders allege corporate loot of resources, suppression of democratic rights

By Our Representative  Civil rights activists have alleged, quoting top intelligence officers as also multiple international forensic reports, that recent developments with regard to the Bhima Koregaon and the Citizenship Amendment Act-National Register of Citizens (CAA-NRC) cases suggest, there was "no connection between the Elgaar Parishad event and the Bhima Koregaon violence." Activists of the Campaign Against State Repression (CASR) told a media event at the HKS Surjeet Bhawan, New Delhi, that, despite this, several political prisoners continue to be behind bars on being accused under the anti-terror the draconian Unlawful Activities (Prevention) Act. Addressed by family members of the political prisoners, academics, as well as social activists, it was highlighted how cases were sought to be fabricated against progressive individuals, democratic activists and intellectuals, who spoke out against "corporate loot of Indian resources, suppression of basic democratic

Kerala natural rubber producers 'squeezed', attend to their plight: Govt of India told

By Rosamma Thomas   Babu Joseph, general secretary of the National Federation of Rubber Producers Societies (NFRPS) at a recent discussion at Mahatma Gandhi University, Kottayam, explained that it is high time the Union government paid greater heed to the troubles plaguing the rubber production sector in India – rubber is a strategic product, important for the military establishment and for industry, since natural rubber is still used in the manufacture of tyres for large vehicles and aeroplanes. Synthetic rubber is now quite widespread, but styrene, which is used in making synthetic rubber and plastics, and also butadiene, another major constituent of synthetic rubber, are both hazardous. Prolonged exposure to these even in recycled rubber can cause neurological damage. Kerala produces the bulk of India’s natural rubber. In 2019-20, Kerala’s share in the national production of rubber was over 74%. Over 20% of the gross cropped area in the state is under rubber cultivation, with total

Bangladesh 'rights violations': US softens stance, fears increased clout of China, India

By Tilottama Rani Charulata*  In December 2021, in addition to the Rapid Action Battalion (RAB), the United States imposed sanctions on seven former and current officers of the force, alleging serious human rights violations. Benazir Ahmed and former RAB-7 commander Miftah Uddin Ahmed were banned from entering the US. RAB as an institution was also canceled the support it was getting from the US and its allies. At the same time, those under the ban have been notified of confiscation of assets held abroad. The anti-crime and anti-terrorism unit of the Bangladesh Police, RAB is the elite force consisting of members of the Bangladesh Army, Bangladesh Police, Bangladesh Navy, Bangladesh Air Force, Border Guard Bangladesh, Bangladesh Civil Service and Bangladesh Ansar, and has been criticized by rights groups for its use of extrajudicial killings and is accused of forced disappearances. The government of Bangladesh has been insisting about lifting the ban on RAB, but the US had till recen