Moody’s downgraded LIC on Monday due to three reasons: a) for picking up stake in the divestment of stocks like ONGC, when no one else was willing, to help the government reduce its fiscal deficit; b) for picking up stakes in a lot of public sector banks; c) for having excessive exposure to bonds issued by the government of India to finance its fiscal deficit. While the downgrade will have no impact on the way India’s largest insurer operates within India, it does raise a few basic issues which need to be discussed threadbare.