Privatization is done when any government venture is in losses and so that by selling some stakes in LIC they can gain up to profits. The moment when finance minister Srimati Nirmala Sitaraman announced the privatization of LIC, it created havoc in media and the common man. Let us know why the government is privatizing the LIC.
The parliament of India passed the LIFE INSURANCE OF INDIA ACT on 19 June 1956 creating the life insurance corporation. It consolidates the business of 245 private life insurers and other entities offering life insurance.
LIC has total assets of 31 trillion rupees or 31 lakh crores. It has 1,11,979 employees and 12 lakh agents. It has a profit of Rs.48,444 crores for the financial year 2018. There is a 76% market share in the insurance sector. The government owns 100% of LIC.
It is the only insurer offering a sovereign guarantee that means security to every policyholder. This is the reason why the premium of LIC is higher than all the other insurance companies.
Now the government is putting some stakes of LIC into an IPO. IPO is Initial Public Offerings that means offering some shares of LIC into stocks. This helps to raise capital from public investors. LIC’s stake sales are likely to be under 10%. This process started soon after the budget sessions. LIC will come into shares before March 2021. The government is doing this as an ambition to target 2.1 trillion through disinvestment.
The reason for privatization is because the economy slows down. People are not paying the taxes that they have to pay. Previously when any companies are in losses, the governments ask and orders LIC to buy those failures venture stakes which makes LIC bare all those burdens.
The government is expecting 70000 crores from the sale of 10% stakes in LIC. And thinking that many big investors will be happy to buy those stakes as the profit of LIC is huge.
This way the government can earn much more amount and use it for infrastructure projects. When listed in IPO LIC will be now monitored by SEBI (Security and Exchange Board of India) which will be helpful for better performance of LIC.
Even now, LIC is investing in state projects, Highways, Infrastructure and many more. The government thinks that by privatization, the public investors will have some authority on it and will not allow LIC to invest in failure ventures or buy any failure companies.