FDI policy to be tweaked soon to pave way for LIC public issue, says DPIIT secretary

File Image of LIC Building.

The government will approve and notify the necessary changes in India's Foreign Direct Investment (FDI) policy to allow the disinvestment in the state-run insurer Life Insurance Corporation (LIC).

"Interministerial consultations are in the last phases. Things should happen very soon," Department for Promotion of Industry and Internal Trade Secretary Anurag Jain said. He hinted that the Cabinet would be approached for approval soon.

This coincided with Finance Minister Nirmala Sitharaman telling Network18 in an interview that the details of the policy would be announced soon, while the money from the IPO would come in FY22 itself.

On February 1, Department of Investment and Public Asset Management Secretary Tuhin Kanta had stated that the life insurer was likely to file draft IPO papers within two weeks.

The DPIIT is working with the Department of Financial Services (DFS) and Department of Investment and Public Asset Management (DIPAM), under the Finance Ministry. Jain said that he expected things to forward smoothly on the issue and all ministerial clearances to be given soon, as the issue had not seen any difference in stance among the ministries.

Big numbers involved

The Reserve Bank of India defines FDI as purchase of a stake in a listed company that’s 10 percent or larger by an individual or entity based abroad, or any foreign investment in an unlisted firm. The clearance for FDI in LIC will not just allow global funds to participate in the IPO but will also open doors for a significant stake purchase after the listing.

Currently, FDI of up to 74 percent is permitted in most Indian insurers. However, the rules don’t apply to LIC because it is a special entity created and administered by a separate act of parliament, namely the LIC Act.

As per rules of the Securities and Exchange Board of India, both FPI and FDI are permitted under public offer. However, since the LIC Act has no provision for foreign investments, there is a need to align the proposed LIC IPO with Sebi norms regarding foreign investor participation.

The much-awaited IPO of the life insurance behemoth is expected to be one of the biggest in the country, with the government aiming to raise close to $12 billion by selling a minority stake to the public.

The government has revised the disinvestment target for the current fiscal year to Rs 78,000 crore from the Budget estimate of Rs 1.75 lakh crore. With the government already pocketing more than Rs 24,000 crore so far from disinvestment, the proceeds from LIC's IPO are likely to be a little more than Rs 50,000 crore.

LIC is the largest asset manager in India with Rs 36.7 trillion Assets Under Management (AUM). LIC's AUM on a standalone basis were equal to 18 percent of India's GDP for FY21. It has been providing life insurance services in India for more than 65 years and is the largest life insurer in the country with a market share of 64.1 percent.