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Life Insurance Corporation’s (LIC’s) purchase of Oil and Natural Gas Corporation (ONGC) shares during the government’s part-divestment of its holding has come under fire from a parliamentary panel.
The Standing Committee on Finance has questioned government-owned LIC’s acquisition and asked the Insurance Regulatory and Development Authority (Irda) to inquire if the company had breached investment norms while buying the shares during the government stake auction.
The report of the panel, headed by former finance minister Yashwant Sinha, was tabled in Parliament on Tuesday.
“The committee cannot but conclude that the objective of disinvestment has been reduced to merely deficit-bridging,” goes its rap on one state-run firm’s equity being bought by the other. The report says it regrets the government using central public sector enterprises (CPSEs) as a “milching cow”.
“It was nothing but mere financial engineering to shift money from one pocket of the exchequer to the other,” is its observation.
The government raised Rs 12,767 crore by auctioning shares in ONGC, and LIC had subscribed to a huge chunk of the issue. The share sale was subscribed 98.3 per cent, with LIC taking 84 per cent of the shares on offer. The rest were bought by institutional and retail investors. Following the share purchase, LIC’s stake in ONGC has gone up to 9.48 per cent.
According to the norm of the insurance sector regulator, insurers cannot hold more than 10 per cent stake in any company. The panel has said that owing to risks associated with the recent acquisition, 290 million policyholders of LIC were likely to be adversely affected.
The government raised about Rs 14,000 crore through disinvestment in public sector undertakings (PSUs) in 2011-12, much less than the budgeted Rs 40,000 crore. For 2012-13, the government targets Rs 30,000 crore through stake sale in PSUs.
“The government should formulate a coherent and effective disinvestment policy without diluting the objectives for which CPSEs have been set up,” the panel said. Adding, the government seems “unduly confident” of achieving the disinvestment target for the current financial year.
The committee has also expressed doubts over the government’s ability to achieve the fiscal deficit target of 5.1 per cent of gross domestic product in 2012-13. “The possibility of occurrence of fiscal slippages again in the year 2012-13 is distinct,” it said, adding the government should prepare a schedule to achieve the budgeted target.
“Doubts over achieving the fiscal deficit target also emerge owing to factors like the government’s huge borrowing programme, widening current account deficit ... shortfall in tax collection and failure in achieving the disinvestment target,” the report said.