The Union government is all set to unveil India’s mega Initial Public Offering (IPO) of a public enterprise. LIC of India, the life insurance behemoth, is valued at around Rs 22 lakh crore, and once listed would be the largest company by market cap.
Such an IPO will do many good things to the Indian economy. It will unlock the value hidden in Life Insurance Corporation (LIC), and the money earned could be gainfully deployed by the government in various infrastructure building activities. It will bring down the fiscal deficit. It will offer an excellent investment vehicle for the Indian retail investors. It will bring the much-needed transparency to LIC’s management.
While LIC continues to be a very large and profitable life insurance major in India, it is a long way away from modernisation, both in its functioning and in its product offering. It is this weakness that many private life insurers have exploited deftly. LIC is not competitive with respect to its private peers when it comes to whole life insurance policies and term insurance policies. LIC is being edged away in high value, urban customer-targeted life insurance offerings by its competitors.
This is exactly how over the years Air India and BSNL faltered. When they were monopolies, they were making massive profits. As the airlines industry opened up, Air India started going down. Political interference, massive subsidy on unprofitable routes and lack of focus on customer service led to excessive bleeding and it took enormous efforts, considerable compromise and thousands of crores of rupees of the exchequer to offload the company to the Tatas.
BSNL/MTNL once commanded a massive valuation. Successive governments were constantly threatened by the trade unions and opposition parties from disinvesting in these companies when they were making profits. In 2020-21, they clocked a combined loss of over Rs 10,000 crore. It was a better performance, for the losses were almost twice a couple of years earlier. If the political parties had unanimous voice, the government could have easily diluted considerable stakes in them a decade ago, brought professional management and made them failure-proof. Alas, that was not to be. The combined liabilities of these two companies now is more than Rs 1.1 lakh crore.
It is in this light that one should look at LIC’s IPO and cheer the process — that we are doing it at the right time. As usual, there is a strong opposition from the Left parties and the Congress. The opposition from the Congress is opportunistic as it had itself championed many disinvestments when it was in power. But what is strange is when state chief ministers come up with their opposition to this process.
The Chief Minister of Tamil Nadu, M.K. Stalin, in a series of tweets said that such an IPO is “quite undesirable” and “neither in the interests of our people nor the organisation”. He also pontificated that an ideal government should be building institutions instead of selling existing ones.
An ideal government shall build institutions instead of involving itself in a selling spree. I urge the Union Govt to roll-back this ill-thought-out decision and save @LICIndiaForever. (3/3)
— M.K.Stalin (@mkstalin) February 14, 2022
In the last few decades neither the Union government nor the state governments have built any business, be it in the manufacturing or the service sector, that is worth mentioning here. All the state government-owned utilities, particularly in electricity production and distribution, are in doldrums across the country, saddled with massive debts. The most successful business entity owned by the Tamil Nadu government is TASMAC (Tamil Nadu State Marketing Corporation), a monopoly selling liquor, which has grown at a CAGR (compound annual growth rate) of 20 per cent year-on-year over a decade, clocking annual revenue of over Rs 31,000 crore now.
The mainstream as well as fringe political parties in Tamil Nadu have always been against IPO or disinvestment of public sector entities. This does not come from deep economic thinking. It is a thoughtless, knee-jerk reaction. In 2013, the UPA government at the Centre decided to offload some stakes in Neyveli Lignite Corporation (NLC) in the stock market. Then Tamil Nadu Chief Minister Jayalalithaa opposed it vehemently. The Union government stood firm, and so Jayalalithaa decided to buy the stake herself through a bunch of Tamil Nadu government-owned entities; an utter waste of state’s resources. Tamil Nadu political parties continue to oppose the privatisation of Salem Steel Plant, a unit of SAIL, which will soon be run to the ground and its value fully destroyed.
The ruling DMK now has a highly qualified finance minister PTR Palanivel Thiagarajan, who has seen the world and has worked in global financial institutions. He has been instrumental in putting together an economic advisory committee consisting of stalwarts like Raghuram Rajan, Arvind Subramanian and Esther Duflo, and yet we see comments from the chief minister that are straight from the Communist playbook.
As in the case of advanced economies, India’s future lies in privatised businesses paying fair taxes under a strong compliance environment, while the government focuses on providing quality public goods to all its citizens, utilising the taxes efficiently. Owning or building bloated and inefficient public sector companies is not the way to build a strong, functioning economy; it will only help cronies.
M.K. Stalin has ambitions of playing a significant role in the national politics. Our fervent hope is that his advisors put together a pragmatic and sensible economic policy that he can articulate well, when the right time comes.
Badri Seshadri is a political analyst and the co-founder of New Horizon Media Pvt. Ltd., a publishing company based in Tamil Nadu. He also co-founded Cricinfo. The views expressed in this article are those of the author and do not represent the stand of this publication.