How to Cite:

Makol, S. (2021). Disinvestment of LIC: a strategic move of Indian government. International Journal
of Economic Perspectives, 15(1), 15–29. Retrieved from
https://ijeponline.org/index.php/journal/article/view/2

Disinvestment of LIC: A Strategic Move of

Indian Government

Sarika Makol
Associate Professor, Sagar Institute of Research & Technology-Excellence, Bhopal

Abstract---LIC is known for its trust and secure life. The well-known
punch line “ZindagiKeSaathBhi, ZindagiKeBaadBhi” now has a
question mark? The main question arises why the government is
making disinvestment of LIC. The simple answer is that Government
wants funds. The present paper is an effort and an attempt to find out
the reasons behind the disinvestment of LIC. The main objective of the
study is to critically analyze the Disinvestment of LIC. The first part of
the paper will cover the introduction and journey of LIC in India,
objectives, review of literature, and research methodology. The second
part will consist of a critical Analysis of LIC & its success and future
projections after the disinvestment. The last part of the paper
highlighted the limitations, findings, suggestions & recommendations,
and conclusion.

Keywords---disinvestment, insurance premium, LIC, life insurance,

liquidity, market capitalization.

Introduction

Life Insurance Corporation of India has completed 63 years of its incorporation.

LIC has played a significant role in spreading the message of life insurance among
the masses, in particular to the rural areas, and mobilization of people’s money
for their welfare. The main motive of LIC is to safeguard the well-being of the
citizens of our country, to equip its vast and diverse nation with at least basic life
cover so that the people of our country can be able to attain financial security for
themselves as well as their family members. In its 63 years of journey, LIC has
crossed many milestones and has set unprecedented performance records in
various aspects of the life insurance business. LIC is surpassing its records and
continues to be the dominant life insurer even in the liberalized scenario of Indian
insurance (Chidambaram & Alagappan, 1999; Colinvaux, 1979; Crawford, 1998).
LIC has shown growth on various grounds by its customer base, agency network,
branch office network, new business premium and has a significant role in
spreading life insurance widely across the country.

© 2021 by The Author(s). ISSN: 1307-1637 International journal of economic perspectives

is licensed under a Creative Commons Attribution 4.0 International License.
Corresponding author: Makol, S. Email: [email protected]
Submitted: 27 April 2021, Revised: 18 May 2021, Accepted: 17 June 2021
15
16

As of date, LIC has 30 plans for sale under Individual businesses consisting of
various categories being Endowment, Term Assurance, Children, Pension, Micro
Insurance, Health Insurance, and Market linked products, etc. The products
satisfy different needs of various segments of society (Agarwal, 2002; Agnihotri,
2014; Bhole, 2003). The main criteria of LICs investments are its national
priorities and obligation of reasonable returns to the policyholders. As per the
IRDAI reports, LIC has its Corporate Office in Mumbai with 8 Zonal Offices, 113
Divisional Offices, 2048 Branches, 1430 Satellite Offices, and 1227 Mini Offices.
It also has a strong field force of 1148811 Agents and over one lakh employees.
LIC also has its overseas operations in 14 countries (Mathew, 1998; Cummins et
al., 1999; Grosen & Jørgensen, 2000). For digitization, LIC has developed its
portal system equipped with the latest technological platform. LIC Mobile App for
the customer is available on Android as well as iOS platforms and has over
800,000 Active Users. LIC's new Customer Portal has over 100 lakh registered
users.

Table 1
Claim settlement performance F.Y.2017-18

S.No. Particulars Amount

1. Total Number of Claims Settled 266.08 Lakhs
2. Total Amount of Claims Paid 111860.41 Crores
3. Percentage of Maturity Claims Paid 96.35%
4. Percentage of Death Claims Paid 98.04%
Source: IRDAI annual reports 2017-18

Table 2
Other performance parameters (Rs In Crore) F.Y.2017-18

S.No. Particulars Amount

1. Total Income 5,23,611.11
2. Total Premium Income  3,17,850.99
3. Payment to Policyholders  1,98,119.83
4. Total Life Fund  25,84,484.92
5. Total Assets  28,45,041.82
Source: IRDAI annual reports 2017-18

Review of related literature

A lot of work has been done on LIC which has been reviewed through various
research papers but for disinvestment issues it is rare. Dr. Ravi N Kadam (2012),
“LIC of India: A Giant in India‟s Insurance Sector” has made a study on the
importance of insurance in risk management, performance, and competitors for
LIC. The researcher has identified the 23 competitors for LIC. The study was done
for a period of 5 years from 2005 to 2010. The life insurance business was
measured based on gross premium income and net premium income.
PrachiAgnihotri, in her study, “The impact of Privatization on the LIC of India” has
thrown a light on the performance of LIC of India in a competitive position. The
article contained the post-privatization period, competitive environment, major
 17

attributes for the success of plans, and performance of LIC. The descriptive study
was conducted on the negative and positive aspects of LIC by considering the
views of experts. The study period was 5 years from 2008-09 to 2012- 13. Ratios
were used to analyze the performance of LIC. It was concluded saying that the
overall performance evaluation of LIC of India is consistent and suggested having
more service standards to maintain the market value of products.

Dr. K Ramanathan (2014), “A Study on the Cost Control Efficiency of LIC of India”
in his article has evaluated the cost control efficiency of LIC during the period
2002 to 2012 for 10 years. The analysis revealed that in the first two years of the
study LIC didn’t reduce the expenses it has been made clear from the covariance
that income and expenses were insignificant throughout the study period. The
study also calculated the cost efficiency score of LIC of India using Data Envelope
Analysis and in all the years LIC had scored the highest rank and maintained
consistency compared to private insurance companies. T Narayana Gowd, Dr. C
Bhanu Kiran, and Dr. C H Ramaprasada Rao, in their research paper, attempted
to study the overall performance of LIC of India and investment strategy and its
impact on profitability for a period 1998-2011. The investment of LIC has
increased from 77.5 % in1998 to 95.81 % in 2010-11 due to effective regulation of
SEBI and increasing transparency and performance of Indian corporate
securities. The multiple Regression analysis revealed that the investment strategy
of LIC has a positive impact on its Profitability as R multiple Correlation
Coefficients in the case of sector-wise investment (0.99) and instrument-wise
investment (0.98) are high. The Correlation profitability is significantly positive
and also the impact of the investment strategy of LIC has significantly positive on
its profit earned. The Regression model is valid and best fit to the data as the
adjusted R 2 value being close to the R2 value.

Article on “Assessing Private Health Insurance in India–Potential Impacts and

Regulatory Issues” asserts that the entry of private health insurance companies in
India is likely to have an impact on the costs of health care, equity in the
financing of care and the quality and cost-effectiveness of such care. However, he
mentions that an informed consumer and a well-implemented insurance
regulatory regime in many cases eliminate some of the bad outcomes.

Objectives of the study

Below mentioned are some of the objectives of the study. critical Analysis of LIC &
its success and future projections after the disinvestment.

 To understand the importance of Life Insurance in human life.

 To know the Journey of LIC in India
 To study the critical analysis of LIC and its success
 To examine the future projections after the disinvestment of LIC

Method

The present study has been conducted using secondary data from the LIC of
India. The required information and data have been collected from the annual
18

reports of LIC. The other required information has been gathered from various
academic journals, literature of LIC.

Discussion

Scope of the study

Life insurance is significantly important for human life today. The present study
tries to give a perfect knowledge about the insurance sector managed by the
government. The study has been made using secondary data collected from the
annual reports of the LIC of India.

Critical analysis of LIC and its Success

In the following paragraph analysis of Life insurance has been done with the help
of the secondary data taken from the IRDAI website. This data helps to know
about the comparison of LIC with the private sector insurance in terms of their
global insurance scenario with the help of statistics related to Region-wise Life
and non-life premium, total real premium growth rate, Insurance penetration,
and density, the premium is underwritten, and its market share and also
investment income and profit of life insurers. This data determines the growth
and success story of LIC globally.

World insurance scenario

According to the ‘World Insurance in 2018’ report published by reinsurance

major, Swiss Re, global economic growth supported the insurance sector in 2018,
with the real gross domestic product (GDP) up 3.2%. As per the IRDAI reports,
Table 3 shows that Global direct premiums surpassed the USD 5 trillion mark for
the first time ever in 2018, reaching USD 5193 billion (6.1% of global GDP). Total
premiums expanded in both nominal and real terms, but overall growth was
slower than in 2017 due to weakness in the life sector. The latter was due to
shrinking markets in Europe, China, and Latin America. Life premiums in
emerging markets increased by 13% in 2017 whereas they fell by 2.0% in 2018.
This turnaround was mainly driven by China, due to a tightening of regulatory
supervision on the distribution of savings policies which causes premiums to
decrease by 5.4%. Life premiums increased by 7.0% with robust growth in key
markets in emerging Asia. As there was a significant improvement in the Asia-
Pacific region due to which the Global non-life premiums increased by 3% to USD
2373 billion in 2018 up from 2.8% in 2017.

Table 3
Region-wise life and non-life insurance premium (Premium In USDbillions)

Life 2016-17 2017-18 2018-19

Regions/Countries
Advanced markets 3798.65 3819.64 4086.14
Emerging markets 933.54 1072.05 1107.09
Asia-Pacific 1493.53 1590.69 1682.51
India 79.31 98.00 99.84
 19

World 4732.19 4891.69 5193.23

Source: IRDAI Annual Report 2018-19, Swiss Re, Sigma No. 3/2019

Indian insurance in global scenario

Global life premium growth is expected to improve in 2019/20, at a rate well

above the annual average of the last 10 years. As per the IRDAI reports, Table 4
describes that India’s share in the global insurance market was 1.92 percent
during 2018. However, during 2018, the total insurance premium in India
increased by 9.3 percent (inflation-adjusted) whereas global total insurance
premium increased by 1.5 percent (inflation-adjusted). Globally, during 2018 the
share of life insurance business in total premium was 54.30 percent and the
share of non-life insurance premium was 45.70 percent. However, the share of life
insurance business for India was very high at 73.85 percent while the share of
non-life insurance business was at 26.15 percent. The Indian non-life insurance
sector witnessed a growth of 14 percent (inflation-adjusted) during 2018. During
the same period, the growth in global non-life premium was 3 percent (inflation-
adjusted). However, the share of Indian non-life insurance premium in global
non-life insurance premium was at 1.1 percent and India ranked 15thin global
non-life insurance markets (Agrawal Raj & Diwan, 2000; Bodla et al., 2003; Nena,
2013).

Table 4
Total real premium growth rate (In Percent)

Life 2016-17 2017-18 2018-19

Regions/Countries
Life Non- Total Life Non- Total Life Non- Total
Life Life Life
Advanced markets -0.5 2.3 0.7 - 1.9 -0.6 0.8 1.9 1.3
2.7
Emerging markets 16.9 9.6 13.5 14 6.1 10.3
- 7.1 2.1
2.0
Asia-Pacific 7.4 8.9 7.9 5.6 5.8 5.7 - 6.4 2.1
0.1
India 8.0 12.9 9.1 8.0 16.7 10.1 7.7 14.0 9.3
World 2.5 3.7 3.1 0.5 2.8 1.5 0.2 3.0 1.5
Source: IRDAI annual report 2018-19, Swiss Re, Sigma No. 3/2019

The measure of insurance penetration and density reflects the level of

development of the insurance sector in a country. While insurance penetration is
measured as the percentage of insurance premium to GDP, insurance density is
calculated as the ratio of premium to population (per capita premium). As per
IRDAI reports, Table 5 shows that the insurance sector has reported a consistent
increase in insurance penetration from 2.71 percent in 2001 to 5.20 percent in
2009during the first decade of sector liberalization. Since then the level of
penetration was declining. However, there was a slight increase in the years 2015
(3.44percent), in 2016 (3.49 percent), in 2017 (3.69), and 2018 (3.70). The level of
insurance density reached up to USD 64.4 in the year 2010 from the level of USD
20

11.5 in 2001. However, there was a slight decline further, but regained its
position gradually and has become USD 74 in the year 2018, (USD 73 in 2017).

The insurance density of the life insurance sector had gone up from USD 9.1 in
2001 to reach the peak at USD 55.7 in 2010. Since then it has exhibited a
declining trend up to the year 2013. During the year 2018, the level of life
insurance density was USD 55 (USD 55 in 2017). The life insurance penetration
had gone up from 2.15 percent in 2001 to 4.60 percent in 2009. Since then, it has
exhibited a declining trend up to the year 2014. There was a slight increase in
2015 reaching 2.72 percent, which remained the same in 2016, increased to 2.76
in the year 2017, and decreased to 2.74 in the year 2018. The penetration of the
non-life insurance sector in the country has gone up from 0.56 in 2001 to 0.97 in
2018 (0.93 in 2017). Its density has gone up from USD 2.4 in 2001 to USD 19 in
2018 (USD 18 in 2017).

Table 5
Insurance penetration and density In India

Year Life Non-Life Industry

Density Penetration Density Penetration Density Penetration
(USD) (percentage) (USD) (percentage (USD) (percentage)
2001 9.10 2.15 2.40 0.56 11.50 2.71
2002 11.70 2.59 3.00 0.67 14.70 3.26
2003 12.90 2.26 3.50 0.62 16.40 2.88
2004 15.70 2.53 4.00 0.64 19.70 3.17
2005 18.30 2.53 4.40 0.61 22.70 3.14
2006 33.20 4.10 5.20 0.60 38.40 4.80
2007 40.40 4.00 6.20 0.60 46.60 4.70
2008 41.20 4.00 6.20 0.60 47.40 4.60
2009 47.70 4.60 6.70 0.60 54.30 5.20
2010 55.70 4.40 8.70 0.71 64.40 5.10
2011 49.00 3.40 10.00 0.70 59.00 4.10
2012 42.70 3.17 10.50 0.78 53.20 3.96
2013 41.00 3.10 11.00 0.80 52.00 3.90
2014 44.00 2.60 11.00 0.70 55.00 3.30
2015 43.20 2.72 11.50 0.72 54.70 3.44
2016 46.50 2.72 13.20 0.77 59.70 3.49
2017 55.00 2.76 18.00 0.93 73.00 3.69
2018 55.00 2.74 19.00 0.97 74.00 3.70
Note: 1. Insurance density is measured as the ratio of premium (in USD) to the total
population. 2. Insurance penetration is measured as the ratio of premium (in USD)
to GDP (in USD).
Source: IRDAI annual report 2018-19

Life insurance premium

As per the IRDAI reports, Table 6 shows that the Life insurance industry recorded
a premium income of 508132.03 crores during 2018-19 as against 458809.44
crores in the previous financial year, registering a growth of 10.75 percent (9.64
percent growth in the previous year). While private-sector insurers posted 21.37
 21

percent growth (19.15 percent growth in the previous year) in their premium
income, LIC recorded 6.06 percent growth (5.90 percent growth in the previous
year) (Table 6). While renewal premium accounted for 57.68 percent (57.68
percent in the previous year) of the total premium received by the life insurers,
new business premium contributed the remaining 42.32 percent (42.32 percent
in the previous year). During 2018-19, the growth in renewal premium was 10.76
percent (8.79 percent in the previous year). New business premium registered a
growth of 10.74 percent in comparison to a growth of 10.82 percent during the
previous year (Table 6). Further bifurcation of the new business premium
indicates that single premium income received by the life insurers recorded a
growth of 10.41 percent during 2018-19 (10.85 percent growth in the previous
year). Single premium products continue to play a major role for LIC as they
contributed 32.89 percent of LIC’s total premium income (33.48 percent in the
previous year). In comparison, the contribution of single premium income in total
premium income during 2018-19 was 18.04 percent for private insurance
companies (15.58 percent in the previous year).

The first year premium registered 11.39 percent growth in 2018-19, as against
10.75 percent growth in the previous year. The private life insurers registered a
growth of 11.46 percent (13.71 percent growth in the previous year); while LIC
registered a growth of 11.30 percent in the first year premium (7.02 percent
growth in the previous year). Unit-linked products (ULIPs) registered a growth of
17.42 percent premium from 64850.90 crores in 2017-18 to 76152.17 crores in
2018-19. On the other hand, the growth in premium from traditional products
was at 9.65 percent, with a premium of 431979.87 crores as against 393958.54
crores in 2017-18. Accordingly, the share of unit-linked products in total
premium increased to 14.99 percent in 2018-19 as against 14.13 percent in
2017-18.

Table 6
Premium underwritten and market share: life insurers

(Premium in Rs. crore) (Market Share in percent)

Insurer Premium Market Share
2017-18 2018-19 2017-18 2018-19
First-year premium (1)
LIC 28146.40 31326.22 42.82 42.79
Private Sector 37581.33 41887.02 57.18 57.21
Total 65727.73 73213.24 100.00 100.00
Single premium (2)
LIC 106525.29 111009.74 82.95 78.29
Private Sector 21900.88 30780.06 17.05 21.71
Total 128426.17 141789.80 100.00 100.00
New Business Premium (3 =(1+2))
LIC 134671.69 142335.96 69.36 66.20
Private Sector 59482.21 72667.08 30.64 33.80
Total 194153.90 215003.04 100.00 100.00
Renewal Premium (4)
LIC 183551.51 195169.11 69.35 66.58
Private Sector 81104.03 97959.88 30.65 33.42
22

Total 264655.54 293129.00 100.00 100.00

Total Premium (5 =(3+4)=(1+2+4))
LIC 318223.20 337505.07 69.36 66.42
Private Sector 140586.24 170626.96 30.64 33.58
Total 458809.44 508132.03 100.00 100.00
Source: IRDAI annual report 2018-19

New Business Premium of Life Insurers

250000
215003.04
194153.9
200000
142335.96
150000134671.69
crores

100000 72667.08
59482.21
50000

0
LIC Private Total
Sector

2017-18 2018-19 Column1

Total Premium of Life Insurers

600000
508132.03
500000 458809.44

400000 337505.07
318223.2
crores

300000

200000 170626.96
140586.24
100000

0
LIC Private Sector Total

2017-18 2018-19 Column1

Life insurance market share

Based on total premium income, the market shares of LIC decreased from 69.36
percent in 2017-18 to 66.42 percent in 2018-19. The market share of private
insurers has increased from 30.64 percent in 2017-18 to 33.58 percent in 2018-
19. The market share of private insurers in new business premium was 33.80
 23

percent in 2018-19 (30.64 percent in the previous year). The same for LIC was
66.20 percent (69.36 percent in the previous year). Similarly, in renewal
premium, LIC continued to have a higher share at 66.58 percent (69.35 percent in
the previous year) when compared to 33.42 percent (30.65 percent in the previous
year) share of private insurers.

Investment income

As per the IRDAI reports, Table 7 shows, that the investment income
(Policyholder’s and Shareholder’s) including capital gains and other income was
223642.30 crore in 2018-19 (206069.53 crores in 2017-18). In the case of the
private insurance industry, the investment income including capital gains was at
61158.07 crores in 2018-19 (55754.32 crores in 2017-18).

Table 7
Investment income - life insurers ( Crore)

Insurer 2017-18 2018-19

LIC 206069.53 223642.30
Private 55754.32 61158.07
Sector
Total 261823.85 284800.37
Source: IRDAI Annual Report 2018-19

Profits of life insurers

As per the IRDAI reports, Table 8 shows that during the financial year 2018-19,
the life insurance industry reported a profit after-tax of8435.81 crore as against
8511.99 crores in 2017-18. Out of the twenty-four life insurers in operations
during 2018-19, twenty companies reported profits. The total profit reported by
the LIC during the year under consideration is 2688.50 crore (2446.41 crores in
the previous year. The private insurers together reported profit after tax of
5747.31 crores (6064.32 crores a previous year).

Table 8
Profit after tax by life insurers (Crore)

Insurer 2017-18 2018-19

LIC 2446.41 2688.50
Private Sector 6064.32 5747.31
Total 8511.91 8435.81
Source: IRDAI Annual Report 2018-19

Returns to shareholders

As per the IRDAI reports, for the year 2018-19, Table 9 describes that LIC
paid/proposed 2660.60 crore (2421.82 crore in 2017-18) as dividend to
shareholders i.e. Government of India. Seven private life insurers paid/proposed
dividends during the financial year 2018-19. HDFC Life paid 328.83 crore (
273.22 crore in 2017-18), ICICI Prudential paid/proposed 703.43 crore ( 990.46
24

crore in 2017-18), Max Life paid/ proposed 397.19 crore ( 285.90 crore in
201718), SBI Life paid 200 crore ( 200 crore in 201718), Shriram Life paid 17.94
crore ( 20.09 crore in 2017-18), Bajaj Allianz paid 105.50 crore and SUD Life
paid 5.18 crore.

Table 9
Dividends paid by life insurers (Crore)

Insurer 2017-18 2018-19

LIC 2421.82 2660.60
Private Sector 1769.68 1781.26
Total 4191.50 4441.86
Source: IRDAI Annual Report 2018-19

Disinvestment of LIC

Meaning of disinvestment

Disinvestment is defined as the selling or liquidation of assets by the Central and

State Public Sector Enterprises, projects, or any other fixed assets.

Purpose of disinvestment

Disinvestments are undertaken by the Indian Government for several purposes.

 To lessen the burden on the exchequer, gather money for specific purposes
to reduce the shortfall in revenue collection from other regular sectors of the
economy.
 for privatization of assets
 to aid the country’s growth in the long term,
 it also aids the government and the concerned companies to reduce their
debt ratio.

The capital market of India is strengthened and advanced as Disinvestment

brings forth a significant share of PSU ownership in the market.

Merits of disinvestment

Disinvestment allows the utilization of large proportions of public resources in

non-strategic public sector subdivisions for employment in arenas located on a
much higher pedestal in the social priority namely: health, family, philanthropy.
Some benefits of disinvestment can be as follows.

 Privatization would help in the reduction of the outflow of sparse

public resources, assisting the “non-strategic public sector units,
consequently.
 Helps in ensuring reallocation of tangible and intangible assets
in sectors of greater priority
 25

 In the process of disinvestment private companies would become

more self-sufficient
 Helps in ensuring greater wealth distribution as the shares of
privatized companies can be presented to interested small scale
investors and workers
 Product quality for customers can be increased because of the
competitive nature of companies

Demerits of disinvestment

 The process of disinvestment lacks transparency

 Disinvestment of profit earning public sectors will snatch away from the
government significant monetary returns
 It would be incorrect to assume that Privatization is influenced by the
public selling of shares

Therefore, as can be perceived disinvestment has competing effects, and it should

be left unto time to ascertain the effectiveness of the current Disinvestment
policy.

Explaining the rationale behind the LIC disinvestment policy

The government in clarifying the rationale behind the LIC stake sells policy
comments, the categorization of companies on the stock exchange in addition to
regulating a company allows access to markets (financial) and determines its
value. Retail investors are also in the process allowed an opportunity to get a
share in the wealth created (Pliska & Ye, 2007; Dahl, 2004; Landsman & Sherris,
2001). The government has agreed to auction a part of its holding to the LIC by
IPO (Initial Public Offering). However, with regards to the IPO, there are a few
things that need to clarify and borne in mind: Firstly, the LIC is owned 100
percent by the Government and even if there is disinvestment of shares it is not
likely to exceed 10% of the shares to the public sector insurance firm. It needs to
be taken into consideration LIC is governed by the LIC act, so before the IPO is
executed the act needs to be amended accordingly (Dermine & Lajeri, 2001;
Aitken & Comerton-Forde, 2003).

As mentioned above the Modi government for the FY20 has set a disinvestment
target of 2.1 lakh crores and the disinvestment of LIC is supposed to fetch 70-80
thousand crore. The listing shall make the IPO one of India’s largest in terms of
“market capitalization”. It is being contemplated by experts the IPO shall attract
foreign investors as well. LIC has consecutively been ranked as the country’s
biggest insurer, with a share of 76.28%. LIC has a plethora of subsidies e.g. IDBI
Bank. NPAs for LIC increased to 6.10 for the initial six months of 2019-2020.
Insurers have successfully doubled the Gross NPAs in the last five years.
Therefore, perceiving the initiative from a holistic perspective entails certain pros
to it as well.
26

Adverse employee reaction to the disinvestment

In reaction to recent disinvestment plan Employee unions, however, have carried

out demonstrations opposing the IPO alleging the move to be in opposition to the
national interest.” The general contention of the employee union asserts LIC has
contributed significantly to the economic augmentation of the country and
dissolution of the government’s power hold would jeopardize the country’s fiscal
and financial autonomy. The statement has been issued while posing threats that
the LIC employee unions would go on an indefinite protest to the plan of the
government (Magnac & Robin, 1996; Ewing & Thompson, 2016; Narayan et al.,
2011). The plan of disinvestment has been proposed by the government in line
with the “maximum governance, minimum government” policy but
straightforwardly the government is not entitled to authorize or impede the
machinations of a business by being in the business mantras and increasing its
fiscal revenues. As commented by the BSP MP Danish Ali “Congress is also
against this step of the government. The employees are against disinvestment and
say that this is against the national interest. It will endanger the economic
sovereignty of the people and will put the savings of crores of policyholders at
stake.”

Although nothing conclusive can be inferred from the immediate public reaction,
there have been deliberations on the policy from both factions of those in support
of the policy and those who oppose it, commenting on the initiative to be in
refutation of the interests of the public and terms it a “family jewel being sold
out”. However, on the other side of the picture, the government assures the
decision has been arrived at only after considering the interest of the public and
that in the long run greater transparency shall be ensured and increased public
participation is allowed (Martini et al., 2018; Sari & Sedana, 2020).

Ways to disinvestment

To attain the various goals and objectives related to disinvestment, a plethora of

methods of disinvestment has been suggested and implemented e.g. Public offer,
refers to the distribution of shares of the public sector at a predetermined price,
via a general prospectus. The offer is reached out to the public via known market
intermediaries. The disinvestment of LIC can be brought into the purview of this
category of disinvestment.

Findings and Suggestions

From the above critical analysis, it is indicated that the Insurance business model
is based on probability. The model is very simple. The collection of premium in a
high volume of customers generates the revenue and settling down the claims as
to the major liability of Insurance companies. Further, the expenditures or
expenses are major outflows, so that in such situations, if and excess over claims
and expenditures from revenue will be surplus. In the case of LIC, we observed
that.

 The company has a very organized procedure for settling the claims of
various policies. Therefore, the liability of claims is set off properly. Further,
 27

there is no manipulation and malpractices in the settlement of claims

through the registered surveyors.
 There is transparency and proper receipts for each scheme and they have
their website portal from where every customer can generate all required
details about various policies.
 It is pointed out that the company has good revenues and is solvent
because the funds are very safe and invested properly.
 The creditability of LIC among the customers is very high as they have full
trust in LIC after investing their money.
 There is no fraud and scams found in the company till now everything is
very transparent and known to its investors.

Conclusion

It can be concluded that it is too soon to reach make any deductions relating to
the disinvestment of LIC. The government in the FY20 has projected an
enterprising disinvestment target. The disinvestment policy of LIC is a
humongous initiative. An improvement at the operational level of state insurers
might be hopefully witnessed in due course. The decision shall ensure LIC does
not go in the direction that was followed by BSNL and lose out on its share of
markets in the future. The IPO shall strive towards making the company more
competitive and vigorous. However, as has been mentioned above and exemplified
in the contention of majority employees the dissolution of the government shares
might, in the long run, threaten the financial sovereignty of India. The
effectiveness of the policy can only be adjudged in the long run. However
undoubtedly the government has ensured a valiant step by incorporating LIC in
the category of Public Listing Disinvestment list of the budget 2020. There are
pros and cons to the plan, but the effectiveness of the plan shall gain prominence,
only after the negative reactions to the policy (protest of the LIC employees)
change has been addressed, the concerns assured, additionally, the legal hurdles
related to the plan needs to be exonerated in due course. If the same concerns are
addressed and the hurdles removed the disinvestment plan of LIC can even out or
reduce the budget deficit that has been multiplying over the years, while at the
same time ensuring a humongous leap in the price of per incremental
disinvestment.

Acknowledgments

I am grateful to two anonymous reviewers for their valuable comments on the

earlier version of this paper.

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