The move goes against the policy norms of IRDA

The Finance Ministry on Wednesday raised the cap on investment by Life Insurance Corporation (LIC) to 30 per cent of a company’s paid-up capital from the earlier ceiling of 10 per cent.

“LIC can invest up to 30 per cent of a company’s paid-up capital. Earlier it could invest up to 10 per cent,” Financial Services Secretary D. K. Mittal told reporters here. The notification announcing the relaxation of investment norms for LIC has been issued, he said. Needless to say, the services of the public sector life insurer, which has been investing around Rs.50,000-60,000 crore each year as part of its normal business practice, will be utilised to reach the disinvestment target of Rs.30,000 crore set for the current fiscal. Ostensibly, as had been done in a few occasions in previous years, in case the response to public issue or IPO (initial public offering) of the public sector undertakings (PSUs) listed for disinvestment during 2012-13 happens to be lukewarm, LIC will then be in a position to come to the Centre’s rescue and pick up the equity stake on offer and thereby help in achieving the mop-up target set for the fiscal.

The Finance Ministry’s move, however, goes against the policy norms of the insurance regulator Insurance Regulatory and Development Authority (IRDA) which wanted the LIC to adhere to the 10 per cent equity guideline, as is applicable for private insurers.

For the fiscal, the government has lined up several PSUs for disinvestment such as Nalco, Hindustan Copper, SAIL, BHEL, MMTC and Oil India Limited (OIL) as also offload the residual equity in companies privatised earlier.

Meeting the disinvestment target set for 2012-13 has become all the more important in view of the widening twin deficits. In the wake of the tepid tax collection and subdued revenue realisation, the Finance Ministry had revised the fiscal deficit target for the current fiscal to 5.3 per cent of the GDP (gross domestic product) from 5.1 per cent budgeted earlier.

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