Govt expects LIC IPO to set stage for wider reforms

NEW DELHI: The initial public offering (IPO) of Life Insurance Corporation of India (LIC) should not be seen merely as an exercise to meet the government’s divestment target but also as a precursor to wider reforms, a top official said.

“There is a need to correct the perception that we’re doing the IPO solely to meet the disinvestment target. That is not the case,” the official said, asking not to be named. “From the beginning, the aim has been to usher in reforms. The finance minister has also stressed on this,” the official said, indicating that proceeds from India’s biggest IPO could set the tone for future disinvestments or IPOs of other locked assets of the government that may derive high value.

This would also align with the government’s larger policy of moving out of non-strategic sectors completely, while having minimal presence in the identified strategic sectors of atomic energy, space and defence, transport and telecommunication, power, petroleum, coal and other minerals, and banking, insurance and financial services.

Getting the LIC IPO into motion sends a strong signal to the market that the government means business, economists said. “Disinvestment and asset sales are two big reforms that the government has been trying to push under hard conditions. More than setting the tone for future divestments, it will reflect government determination and boost sentiment at a time the market is unsure on whether Centre is holding back because of uncertain conditions,” said Madan Sabnavis, chief economist at Bank of Baroda.

The IPO of the country’s largest insurer is expected in the first week of May. The board of LIC has agreed to dilute a 3.5% stake with an upper limit of 5%, amid headwinds from volatile stock markets and investor interest, Mint reported on Saturday.

The government aims to garner ₹21,000-30,000 crore from the sale, at a valuation of ₹6 trillion. The reservations, discounts and issue price will be ascertained by Wednesday morning.

The largest IPO to come to the Indian stock markets will, therefore, take place well before its deadline of May 12 after which it will have to refile the DRHP with Q4 results. The success of LIC’s IPO will determine whether Centre is able to meet its asset sales goal, which has been cut to ₹65,000 crore for FY23, lower than the revised ₹78,000 crore for the previous fiscal.