January 28, 2009

The bare truth

'Satyam Computer Services Limited' (SCSL) was named after the sanskrit word for truth. The scam perpetrated by Mr.Ramalinga Raju has been termed 'a blot on image of India Inc.' by none other than our Prime Minster, Sh. Manmohan Singh.

It now appears that way back in 2002, an Income Tax investigation had unraveled a can of worms. A large scale evasion of Income Tax, many incidents of Insider Trading and related matters came to light but the enterprising income tax official was transferred and the files buried.

After the change of governments at the centre and the state of Andhra Pradesh, one would have thought that the new regimes, in the centre and in Andhra Pradesh, would go hammer and tongs after Mr.Raju, till then considered a protege of Mr.Chandra Babu Naidu, the erstwhile Chief Minister of Andhra Pradesh and an important partner of the NDA government at the centre. However as no such thing happened, it would be fair to assume that either the new regimes are incompetent or that Mr.Raju has managed to win new friends. We all know what is most likely to have happened.

Single-handedly, this man has jeopardised the careers of nearly 53,000 young men and women. He has nearly undone what nearly two decades of economic liberalisation had achieved for India Inc.'s image. After so many decades of the brain drain taking away our talent to pursue their dreams abroad, our young computer software writers and engineering talent had brought the entire western world to virtual dependence on our IT services. The west needed our low-cost IT services to stay viable and India benefitted because of the higher earnings of it's youth. This helped both India and the west.

But Mr.Raju's acts of ommission and commission at SCSL would have created some doubt about our ability to prevent recurrence of such scams. The TV footage of Mr.Raju donning a business suit travelling to the courts in his Mercedes car gives the impression that he is proceeding for a business meeting. If we do not act decisively and fast we might create an impression that political affiliations matter more to us than national economic interest.

It is obvious that Mr. Rama Linga Raju was not alone in this devious and long-duration scam. I pray and hope that good sense prevails upon our politicos and any effort at saving Mr. Raju are abandoned and all those who are guilty are punished forthwith.

January 24, 2009

The Satyam saga - blame it on the auditors

It is now crystal clear that Mr. Rama Linga Raju, the Founder and till recently the Chairman of the board of Satyam Computer Services Limited, a listed, public-owned and widely traded company that is India’s fifth largest IT company by revenue and an E&Y award winner as ‘The most admired company’ in 2007 has cheated the Satyam investors.

He not only diverted funds from the reserves of the company to satisfy his unending appetite for land, he also created around 13,000 fictitious employee records to inflate the salary bill and siphon out money. Though the Satyam bankers have denied opening any bank accounts for these fictitious employees, it remains to be investigated how this money was transferred out of Satyam’s bank accounts. If any complicity by anyone at HDFC Bank, one of Satyam’s bankers is even suggested, Mr. Deepak Parekh should step down immediately from the Government appointed Satyam board chairmanship.

It is therefore no surprise that the net profit margins (NPM) of Satyam were lower than the top four IT companies for all these years. The balance sheets of Satyam over the last seven years show the NPM averaging at around 20% against the top four companies average of 28-30%. Which means by overcharging salaries he depressed the gross profit margins (GPM) and thus the NPM of Satyam.

In effect he also understated the Earnings per share (EPS), which led to a greatly reduced market value for the Satyam stock. He caused massive erosion in the daily trade turnover, which also caused a great revenue loss for the exchequer.

When cornered he admitted that he had overstated the GPM due to competitive pressures and that the actual GPM was much lower. What he wanted us to believe was that the profits were non-existent and never accrued to Satyam while the truth it appears is that the profits were real, the expenses were not and thus Raju was not merely guilty of window dressing the Satyam book of accounts. He was responsible for large scale swindling of investor wealth.

The question uppermost in the mind of a common man would be “Who guards the stake of a small investor whether investing through the primary or the secondary market or through the Mutual Fund route?”

Similarly the State needs to ask itself “Who ensures that the State gets its rightful dues in Income Tax, VAT, Security Trading Tax and so on?”

Obviously sharks like Raju are lurking to steal and swindle. What are the ‘Eyes and ears of the investors’ like SEBI doing? Just pinning the blame on Price Waterhouse Coopers (PWC), the Satyam auditors and sitting smug is not going to be enough. PWC are global players with more than two hundred years of experience and know well how to play this game of ‘passing the buck’. They would have reams of fine print in their agreement with Satyam to save their skins.

The games must stop. The law should be allowed to take its course and Raju tried in a fast track court. If convicted he should be made to pay dearly. All his assets must be taken away and he should be forced to lead the life of an ordinary man once again.

If he is all that smart, let him start Chapter II of his life or better still Satyam II, if anyone would lend him a dime for business.

January 16, 2009

Priorities for public spending

Everyday as I drive from home to work I cross the stretch of road near the foot of the Savitri cinema flyover in South Delhi. Daily I wonder why after such revolutionary leaps in road building technologies is that part of the road so uneven, potholed and bumpy.

My civil engineer colleagues, who I thought should know better, usually give the explanation of inferior quality of raw materials being used. The civic authorities come up with the novel explanation that the plants to make hot bituminous mix are located too far away from the city, as per Supreme Court (SC) guidelines which means to the mix gets laid at a much cooler temperature than desired and this leads to the prevailing situation. The Municipal Corporation of Delhi (MCD) would like to paint the SC as the villain of the piece for its insistence that Delhi residents get a less polluted air to breathe. According to the MCD the residents of Delhi have only one choice – Poor carcinogenic air to breathe or lousy roads.

No one seems to have an answer to my next query. If the choice is so simple then how is it that the entire length of roads is not so bad and only patches are rotten? And why are the roads in and around the city center viz. Connaught Place, India Gate, Parliament House and Jan Path so much better? Obviously these places are at a much greater distance from the hot mix plants, which are located outside town.

We as a nation have convinced ourselves that our politicians are superior beings and deserve the best that modern technology offers. The lesser mortals can simply go to hell. We have come to believe collectively that these suckers, who have no choice but to have their incomes taxed at source and very little chance to evade taxes, have no right to drive on good roads. The politicians most of whom are accused of rioting, looting, arson, many times rape and even murder have a birth right to good roads so that their imported luxury SUVs and latest brands of highly prized sedans can take them to state assemblies and to Parliament in total comfort.

Till this set of notions change we are doomed to drive lousily built Indian cars on lousy roads. When the cars break down we are doomed to shoddy service at ill-equipped workshops and have ourselves cheated by some manufacturer of spurious motor parts, who has even forgotten when he last paid any VAT or income tax but lives in a beautiful mansion in a swish South Delhi neighborhood which would obviously have much better roads.

Our people have to understand that Quality is not an accident. It is an outcome of sincere and hard work over long period of time. It is something you achieve when you tell yourself that I have paid the price so I am entitled to what I seek. I am not going to settle for anything that is second best. It is only when a vast majority of Indians cultivate this kind of value system that the ‘Made in India’ label would become a hallmark of quality. It s only then that the 14 km. Ride to my office would be a smooth and comfortable one.

January 3, 2009

Dilli ki sardi !

(The Delhi winter cold)

I remember a song from 'Zameen', a film released few years ago which compares love for the beloved with 'Dilli ki sardi' (Delhi's biting winter cold) probably because both don't allow one to sleep in peace.

Delhi had an unusually warm December with average temperatures remaining 4-5 degrees celsius warmer than normal. The weather office stated yesterday that December 2008 was the warmest since 1953. Well it took them 33 days to know what the average Delhite already knew well in advance. I guess they must have been sifting through old tattered and moth-eaten registers to know for sure that it was 1953 and not 1853.

The weather gods in the last few days are trying to make amends and since the dawn of this new year the average temperatures are about 3-5 degrees celsius cooler than normal for January. Yesterday night the minimum was 3 degrees and today morning was around 8 degrees celsius. The thick fog that engulfs the whole city makes the experience almost poetically romantic. A brisk walk in the morning (with not more than 20 of the 200 or so regulars in our park) leaves one totally energised and ready to face the day.

One is beginning to enjoy the biting cold. I guess Delhites would now get an excuse to gorge on the winter goodies like 'Gajar ka halwa', 'Gulabjamuns', 'Makki ki roti and sarson ka saag', 'Gachak', 'Moongphali', 'Bhugga' and many other delicacies which our sweetmeat shops have meticulously crafted to shift the focus from the cold.
I guess in every part of the world there are such man-made diversions associated with extremes of climate to shift focus from the cold and attendent discomfort. One starts looking forward to the acutely cold weather so that one can savour such treats that are associated with extreme cold and one is free of any guilt. In a climate any less hostile partaking of these delicacies provokes a feeling of guilt.

In case any one reading this piece is familiar with such weather related goodies please offer your inputs and enrich me.