Panel for probe into LIC's ONGC share purchase

Panel for probe into LIC's ONGC share purchase

PSUs being used to bridge the deficit

A parliamentary panel has asked insurance regulator IRDA to enquire whether the country’s largest insurer LIC has breached investment norms while buying ONGC shares during the government stake auction.

The Standing Committee on Finance, headed by Former Finance Minister and senior BJP leader Yashwant Sinha, also regretted that the government is using public sector undertakings (PSUs) as “milching cows” to bridge the deficit.

“The committee recommends that the Insurance Regulatory and Development Authority (IRDA) should enquire into this issue and investigate as to whether the LIC has violated any prudent investment norms and exceeded the limit stipulated by them,” it said in a report tabled in Parliament on Tuesday.

Last month, the government raised Rs 12,767 crore through auctioning of shares in oil major ONGC and state-run LIC had subscribed to a huge chunk of the issue. While the ONGC share sale was subscribed 98.3 per cent, LIC had picked up over 84 per cent of the shares on offer. The remaining was bought by institutional and retail investors.

Following this, LIC’s stake in ONGC has gone up to 9.48 per cent. As per the IRDA norms, insurers cannot hold more than 10 per cent stake in any company.

“Owing to risk factors associated with the recent acquisition of shares of ONGC by Life Insurance Corporation (LIC), 29 crore policyholders of LIC are likely to be adversely affected,” the committee said.

The committee has also expressed its disapproval of the manner of ONGC disinvestment and said, “it was nothing but mere financial engineering to shift money from one pocket of the exchequer to the other”.

The government could raise about Rs 14,000 crore through disinvestment in public sector undertakings (PSUs) in 2011-12 fiscal, much less than the budgeted Rs 40,000 crore.

For the current fiscal, the government targets to raise 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 the CPSEs have been set up,” the committee said.

It said that the government seems to be “unduly confident” of achieving the disinvestment target for the current fiscal and said disinvestment has turned out to be merely a deficit-bridging exercise.

The committee has also expressed doubts over the government’s ability to achieve the fiscal deficit target of 5.1 per cent of GDP in 2012-13 fiscal.

“The possibility of occurrence of fiscal slippages again in the year 2012-13 is distinct,” it said, adding that the government should chalk out a roadmap 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 disinvestment target,” it said.

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