The morning after

The morning after
Mains Paper: 3 | Economics 
Prelims level: IL&FS board
Mains level: Government, and new IL&FS board, need to clean up the mess and fix accountability

Context 

• The government stepped in and took control of the infrastructure conglomerate, Infrastructure Leasing & Financial Services or IL&FS, sacking the board and appointing a new one. 
• The government in a company in the form of superseding its board in which it is not a direct stakeholder has been justified in the interests of financial stability and the adverse impact of the collapse of such an institution on the capital markets. 
• The government officials and a regulatory chief will now have to finalise a restructuring plan or a roadmap for the debt laden group and ensure an orderly winding down.

Important highlight of the IL&FS balance sheet 

• Parallels have been drawn between the government intervention in the case of IL&FS and that of Satyam Computer Services in 2009 after the promoter confessed to having fudged the accounts. 
• The group’s liabilities top Rs 91,000 crore is much higher than the burden in Satyam’s case and spread over more than 160 group companies.
• Globally, there have been models like this one where an institution acts as an infrastructure developer and as financier too, but it is fraught with risk given the high leverage. 
• Those risks are amplified in India because of frequent policy changes and the constraints in pricing in the infrastructure sector and the failure to enforce contracts.

Way forward 

• The government has also ordered a probe by the Serious Fraud Investigation Office. 
• For the new board and government, the job should not end with a resolution plan. 
• It should go hand in hand with a forensic audit and fixing of accountability.
• Even as the government cleans up the mess, it will have to think hard on how it will fill the void in financing infrastructure.

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UPSC Prelims Questions: 

Q.1)  Who has been appointed by Union Government as the Chairman of newly constituted board of IL&FS?
A.    Shikha Sharma
B.    Ratan Tata
C.    Deepak Parikh
D.    Uday Kotak 
Answer:  D

UPSC Mains Questions:
Q.1) Government, and new IL&FS board, need to clean up the mess and fix accountability.