THE GIST of Editorial for UPSC Exams : 18 September 2018 ( In IL & FS, India rues its own belt-and-road debt fiasco)

In IL&FS, India rues its own belt-and-road debt fiasco

Mains Paper: 3 | International Relations
Prelims level: Infrastructure Leasing & Financial Services Ltd
Mains level: It’s remarkable that India—itself a vocal critic of China’s Belt and Road Initiative allowed IL&FS to do something similar on home turf, with little accountability or supervision

Introduction

IL&FS and its associates have $12.5 billion in debt, of which $500 million is due over the next six months.
The program was midwifed by an up-and-coming lender that few had then heard of: Infrastructure Leasing & Financial Services Ltd (IL&FS).

Objectives of the programme

It wasn’t called belt-and-road, a term that would gain currency much later as a catchphrase for China’s opaquely financed global infrastructure ambitions.
There’s a lot of scrutiny now of those energy and transportation projects, and a growing discomfort that Beijing may be ensnaring developing countries in a debt trap. So it’s remarkable that India—itself a vocal critic of belt-and-road—allowed a local financier to do something similar on home turf, with little accountability or supervision.
A perennial paucity of budgetary resources has forced taxpayers to outsource infrastructure not to the Chinese, but to local public-private partnerships led by IL&FS.
However, in many instances, only the returns became private. Risks remained with the public.

About IL&FS

IL&FS and its associates have $12.5 billion in debt, of which $500 million is due over the next six months.
The group has only $27 million of liquidity at hand, sparking a debt repayment crisis that threatens to engulf Indian banks and mutual funds to insurance and pension funds.
Chairman Ravi Parthasarathy, paid $3.65 million last fiscal year, left abruptly in July after being with the company since its inception.
Driving on it was divine, but it soon became apparent shareholders were getting a risk-free ride at commuters’ expense, with the project guaranteeing 20% returns to equity investors including IL&FS.
When the Delhi and Noida governments gave the land, they had expected the expressway to be returned to them in 30 years.
In 2008, though, it looked like the asset was going to be in private hands for at least 70 years.
In 2016, a court called out the daylight robbery and ordered the toll plazas to be dismantled. Stock of India’s first publicly traded toll road shot up above ₹ 70 in 2007; it changes hands for less than ₹ 9 now.

From the perspective of India

It’s unclear whether IL&FS learned anything from that fiasco.
Prime Minister Narendra Modi’s pet project to set up an international finance centre in his home state of Gujarat,
The state saw government lease land at throwaway prices to an IL&FS-controlled company.
A former head of GIFT City board’s audit committee had to leave after he made noises about the one-sided contract, and complained about the engineering and architectural services vendor appointed by IL&FS not fulfilling its obligations or returning money paid.
The unlisted IL&FS parent is beyond stock market scrutiny.
And while it doesn’t fall within the regulatory regime for deposit-taking institutions, it’s categorized as systemically important.
Yet there’s never been any real oversight of it; an infrastructure-financier that’s also an operator with 169 subsidiaries, associates and joint ventures is too complex for any watchdog or credit-rating firm.

Conclusion

Its majority owners are state-owned, and that’s given IL&FS the aura of a quasi-sovereign.
LIC is IL&FS’s biggest shareholder, yet its officials privately rue the fact that they were diluted in Tirupur to the point they left the operating company’s board.
The same state-run insurer will probably have to rescue it now.
Were IL&FS a Chinese company in a developing country, there would be an uproar by now about exploitative contracts, and the trail of waste left in their wake.
But this is an Indian company in India, playing on the nation’s desperation for decent infrastructure.

UPSC Prelims Questions:

Q.1) Which of the following sectors do not come under the automatic approval route for FDI?
1. Food product retail trading
2. Manufacture of cigars and tobacco
3. Atomic energy
Select the correct answer using the code given below.
(a) 1 only
(b) 2 and 3 only
(c) 1 and 3 only
(d) 1, 2 and 3

Ans: B