Why is the Indian Government Selling a Part of Its Holding in LIC and Making It Public?
The Indian government has recently announced plans to sell a portion of its stake in Life Insurance Corporation (LIC) through a public listing. The objective is to unlock the value of LIC, thereby contributing to the government's fiscal targets. It is important to understand the reasoning behind this strategic move, given India's economic and governance objectives.
Understanding the Government's Objective: Governance and Legislation Over Business Operations
The primary mandate of any federal or state government is governance and legislation. While the state-run enterprises like LIC play a crucial role in the economic fabric, the core responsibility of the government is governance. Managing businesses and services is not the scope of the government, which is why entities like LIC, Post and Telegraph Department, MTNL, BSNL, Air India, SBI, and others need to be privatized or sold off. This is key to achieving a true laissez-faire economy, where the state intervenes minimally, and the market drives economic growth.
Listing LIC: A Strategic Move for Value Unlocking and Governance
By listing LIC on the stock market, the government aims to unlock significant value. The LIC's overall market capitalization is estimated to be between 8 and 10 lakh crores, with a capital of 100 crores. The government plans to sell a small 10% stake, expecting to fetch around 90,000 to 100,000 crores. This is equivalent to 4 times the total cumulative dividend received from 2003 to 2019. The sale is part of the government's disinvestment strategy to align with its fiscal deficit targets.
Addressing the Fiscal Deficit
The government is in dire need of revenue to meet its funding needs and avoid excessive borrowing. This necessitates the sale of strategic assets like LIC. The chosen approach of selling a portion of LIC does not involve transferring the business to any strategic investor; instead, it is aimed at the public at large. This aligns with the government's broader strategy of disinvestment.
Explaining the Decision to the Public
The Indian government's decision to list a portion of its stake in LIC is a strategic move to generate income, adjust the fiscal deficit, and align with its disinvestment targets. The government set a target to generate 2 lakh crores to adjust the fiscal deficit. By selling 10% of the stake in LIC, the government aims to achieve 50% of its target, i.e., 1 lakh crores. This decision reflects the government's commitment to fiscal prudence and transparency in financial management.
Conclusion
The decision to sell a part of LIC to the public stock market is a crucial step in India's economic strategy. It aims to optimize the value of government-held assets, thereby contributing to revenue generation and fiscal stability. This move is in line with the government's commitment to a laissez-faire economy, where the state plays a minimal role in business operations, ensuring a vibrant and competitive market.