IL&FS: Private gain, public pain

The Narendra Modi government refuses to slash taxes on petroleum products on the grounds that the exchequer is strained but it has no problems in facilitating the bailout of a private company Infrastructure Leasing & Financial Services (IL&FS). This is despite the fact that over one-third of the equity is owned by foreign entities. The burden of the bailout will be borne by two state-owned entities—Life Insurance Corporation of India (LIC) and State Bank of India (SBI).

The IL&FS met on Friday and decided that LIC and SBI, which own 25.34 per cent and 6.42 per cent shares respectively, would infuse Rs 3,000 crore in it.

“The fundraising was necessitated after recent defaults by IL&FS group firms to various institutions,” Business Standard (September 8) reported. “IL&FS, with a consolidated debt of around Rs 1 trillion [Rs 1 lakh crore], is facing delays in execution of projects apart from delay in receiving payments from various government agencies for constructing infrastructure projects.”

Both LIC and SBI have agreed to invest in the company as IL&FS is considered “too big to fail” by government officials, said a source, according to the BS report. But IL&FS, though a private entity, became too big using public money. Its bosses seem to have enjoyed the best of both worlds: public money without accountability. No nagging from (which public sector undertakings face) the Comptroller and Auditor General (CAG), Central Vigilance Commission, Parliament, etc.

It needs to be mentioned here that its chief executive officer Ravi Parthasarathy, who founded IL&FS in 1989, quit a couple of months ago. His tenure has been called ‘too long and too opaque.’ It appears that he quit when the things really got tough, leaving a mess behind. And who will clear the mess? No prizes for guessing it right: the taxpayer. Whether it is PSUs like Air India, huge corporate debts, or public-private entities like IL&FS, it is always the taxpayer who has to bear the burden—or, to be precise, is forced to bear the burden.

On March 31, 2017, IL&FS had a leverage of 2.6 times of its net resources, which was quite high, though it was better than 2.89 a year earlier. On Saturday, the rating company Icra downgraded IL&FS by at least nine notches citing cash crunch pressure. IL&FS’ bonds and long-term loans have gone down to BB from AA+. “The downgrade of ratings takes into account the increase in liquidity pressure at the group level,” Icra said in a note.

Another agency, India Ratings, had also downgraded IL&FS on August 24. “The rating action also factors in dilution in the liquidity buffers of IL&FS and system-wide tight liquidity conditions, which pose challenges in accessing long-term cost-effective funding,” India Ratings had said.

The challenges indeed are daunting—and are being met by spending taxpayer money. A few months earlier, the IL&FS board had approved a rights issue worth Rs 4,500 crore, which meant more LIC and SBI investment.

Meanwhile LIC managing director Hemant Bhargava has taken over as IL&FS chairman.

Interestingly, nobody is even bothered about the past happenings in IL&FS. How did it become sick? Was it incompetence? Or the anomalies in government policy? Or malevolence, siphoning off of money? It is time somebody asked these questions—and the powers that be are made to answer them.