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Misusing LIC Funds

As a fiscally strained government struggles to gather funds, to meet the losses of its bankrupt banks and PSUs, and to also meet its disinvestment targets, it has been pulling out funds from every possible source, to fund the mess. Wisdom and financial prudence have been thrown aside. A bankrupt entity is a failed enterprise, which should thus be liquidated and closed. But that does not apply to PSBs and PSUs. No government has the political guts to do that and is compelled to fund the losses of its own bankrupt entities.

The bankrupt Air India is being funded by the sale of its iconic Air India building at Mumbai, to JNPT for about Rs.1500 crores, unmindful of the fact that for JNPT it is a wholly unrelated investment, that it can do without. The insolvent IDBI Bank has been taken over by LIC, by paying a humongous sum of Rs.13000 crores and is likely to infuse more funds therein for its revival. There is simply no justification for LIC to invest previous savings of the public into a bankrupt entity and pay a huge sum of Rs.13000 crores, for which the market would have paid none. But under the government diktat, it willingly did so, notwithstanding the fact that its huge investments in every other PSB, have given it no return on investment, over the years. A similar situation is happening with the loss making Dredging Corporation of India, being purchased by a combination of ports under the Shipping Ministry. It is a case of putting good money after bad money.     

The cash loaded LIC has again become a favourite hunting ground for all politicians. It receives a stable, predictable and long-term cash flow from crores of its policy holders. Its money purse is gigantic. Unlike PSUs like Air India and PSB’s like IDBI Bank, which are engaged in a business activity, LIC is truly not. It is required to manage our previous life savings with responsibility and a sense of trusteeship. That makes the LIC kitty of funds even more sacred and cannot be frittered away, merely because it is politically convenient for the government to do so. But with the government facing a deteriorating fisc, it is eager to tap funds from every possible source. It is now reported to be even demanding that the RBI, an autonomous body, should compulsorily hand over a fixed portion of its surplus to the government, ignoring the long term needs of the RBI itself.

Yet another misuse of the LIC funds is apparent in its bailout of the ILFS, a private sector institution, which has been funded by public money, with the likes of LIC having a 25% shareholding therein, which was engaged in mega debt-funded projects, with a string of mega failures to its credit, whose structure of shareholding, management and numerous subsidiaries under its founder Ravi Parthasarathy has been ambiguous and opaque  and who has now strangely suddenly resigned on health grounds after thirty uninterrupted years at its helm and is saddled with debt of Rs. 60000 crores, is now being takeover by LIC. That makes LIC responsible for its losses and debt repayment too. Unlike other Indian life insurance companies, LIC has bad investments that amount to 5.64% to its corpus, which will only increase with these kinds of bailouts, to the detriment of the public at large.

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