Articles 6424 views February 22, 2020

Budget Announcement of Privatization of LIC

The latest declaration and a big surprise made by Mr. Narendra Modi’s Government in the last Union Budget 2020 was the news of Initial Public Offering -IPO of Life Insurance Corporation of India- or LIC and are a historic verdict made by the government.

Term Insurance

To know the right life insurance cover, please fill the details below and our policy experts will get in touch with you

+91

LIC, the biggest institutional stakeholder and a prudent investor, has a healthy portfolio in India and has been a forerunner in the insurance marketplace by taking 66.24% of the total market share in its total premium for the 1st year and another brilliant figure of 74.71% in acquiring the new insurance policies. Additionally, LIC stated a rise in its New Premiums of 5.68% for the financial year 2018-2019 which is INR 1.42 lakh crores in comparison with larger than INR 1.34 lakh crores for the financial year 2017-2018 *.

Privatization of LIC

The strategy of LIC disinvestment has been misinterpreted as the privatization of LIC, which is untrue. The government has decided to sell a part of its share in LIC and not full 100% of its share. Therefore, there is no question of why the question of privatization of LIC will come. LIC IPO is a portion of the strategic action of the Finance Ministry with a target of INR 1.05 lakhs crores for disinvestment for the financial year 2019-2020. LIC disinvestment will benefit the Government to concentrate on critical economic aspects of India and bridging the gap of fiscal deficit. LIC will effectively bring strong competitors for contributing to the divestment plan when the insurance industry is gradually spreading up in a major way in India thus moving from the concept of one company show to quite a lot of companies. This IPO will be in a position to appeal the Foreign investors and other investors as well globally. And if all goes as planned, then this will be a huge success of the Indian Government to be able to bring in fresh money into the Indian economy by attainment of foreign investments as contrary to pull away from the liquidity from the economy.

Several assumptions are prevailing in the market that the Government is trying to promote privatization by announcing the IPO for LIC like earlier similar declaration and action was taken for Air India and Bharat Petroleum sale. LIC, a company that deals in life and death of the mass, may not necessarily be privatized is what the critics say.

The background behind LIC IPO

LIC booked a noteworthy income of INR 1.76 lakh crores from the dividend component for the financial year 2017-2018. The current market for disinvestment is not only tough but complex too and with a high target of disinvestment, hereafter it was decided to take help from LIC by way of IPO. History has always shown that LIC successfully helped in these situations and therefore is truly a saviour when it comes to the disinvestment strategies of the Indian Government. LIC is India’s is the topmost insurer, and spearhead in the history of life insurance, both by the premium amount collected and together with the number of policies sold to its customers. LIC collected INR 1.37 lakh crores of new premiums which is a 45.5% increase year on year from April till December 2019 and is a great success.

Actions by Government for LIC IPO

The basic rights or the ownership, structure, and operational mode of LIC will remain nearly unaffected and LIC’s performance also will not be affected because of the IPO strategy. LIC will continue to be the largest shareholder in the insurance business because of its continuous demand and dependability. The stock exchanges will be also made in such a way that will change India’s position about its rating with its weightage across several global indexes which will comprise of MSCI – the most highly tracked global index. The government does not have any intention to take away its voting privileges in the subsidiaries and the investee industries like a RIL with 6.56% share, Infosys with 5.8% share, ONGC with 9.4% share and quite a more, as LIC, will still continue to control the earlier voting rights.

Conclusion

LIC is a giant market leader in the insurance business in India and henceforward will also remain to rule the insurance market.

People Also Read