Union Budget 2009-10

Congress & UPA may have changed the Finance Minister but they haven’t changed the policy of the budget being a ‘non-event’ (a word personified by previous FM P Chidambaram) & the only concern the budget carries is ‘Inclusive Growth’ (Something the market has got fed up of since the Nehruvian Socialist India – the concept that still hasn’t quite worked; to UPA’s credit NREGA has got some favourable results including winning the election with clear mandate for Congress & UPA, without a pejorative external support of the Leftist, Communist parties). So in all, the budget had all the ingredients to make a rotten stew & that is what it made. Here’s the list of the ingredients & a small procedure of how to spoil the party.

The basic plan of this government is keep the wheels of growth spinning fast enough so that the wobble created by global financial turmoil does not derail the engine of growth. So the basic target is to maintain the GDP growth above 9% for the whole term, which includes maintaining the Agricultural growth above 4%. There has been lot of ruckus between the state & Central government regarding the collection & utilization of taxes since the introduction of VAT. So the FM has proposed the annual dialogue between the State Finance Ministers & the central government for resolving this issue & to ensure that the state government do no fall short of necessary funds.

Some significant points in expenditure for this year are as follows,

• The budget estimate for expenditure is set to cross the RS. 10 lakh crore for the first time. Total BE is Rs.10,21,000 crore out if which Rs.3,75,000 crore is planned expenditure.
• There is a proposal to set IIFCL as SPV for infrastructure growth.
• The Central Government to refinance 60% infra projects in critical infra sectors, amount estimated for the same is Rs.1,00,000 crore
• Funds allocated for JNNURM to be increased by 87% over last year.
• Also there is 23% increase in funds allocated for NHDP/NHAI.
• There is proposal of providing the farmers with loans up to Rs. 3,00,000 with special low interest of 7%. & further 1% reduction in interest rate to 6% for farmers who repay their loans on time.
• There is emphasis on irrigation with 75% increase in funds allocated.
• Micro, Small & Medium Enterprises are given a boost of 4000 crore for refinancing loans given by banks to these industries.
• A great positive as expected by market for the Petroleum Producing & Marketing industries is that the new mechanism to be introduced for Petroleum pricing policy which will try to decontrol the petroleum prices & put more in line with global crude prices to minimise losses of these industries & also it is bound to reduce the deficit burden on the government.
• To extend the Public involvement in the growth story of India Inc. there is proposal to expand Non promoter shareholding, as currently many of the listed companies have 10 – 15% general public (retail) holding only.
• An amount of Rs.39,100 crore for NREGA in this budget which is astounding 144% higher than last year due to the success witnessed in last year.
• Allocation for Bharat Nirman is up 45% from last year.
• Indira Awas Yojana is given 63% more funds than last year.
• Allocation of Rs.7000 crore for rural electrification.
• FM also proposed a plan of bringing the Employment exchange online to facilitate the jobseekers get into the right jobs & also to create a pool of talent for the India Inc. to choose from.
• There is boost for ex servicemen by increasing the Pension paid to them.
• The all centre of attention UID scheme which is now lead by Nandan Nilekani will be allotted Rs.120 crore & expected to be completed within 12 – 18 months.

Now something about the receipts

• The total Revenue Deficit for this year is set to be 4.8% of GDP.
• The Fiscal Deficit is revised to 6.8% of GDP but FM promised to bring it back within FRBM range at the earliest possible.
• The total Tax receipt for the year are budgeted to be Rs.6,42,000 crore
• Tax to GDP ratio is 11.5%.
• The only positive surprise in the budget that no one expected is that the GST is set to be introduced on previous target of April 1, 2010 without any delays.
• FM proposed to make the returns filing process simple yet again so the Saral 2 forms will be introduced soon.
• There will be New direct tax code prepared within 45 days
• Biggest negative that spooked market was that there was no change in Corporate tax. India Inc. was hoping for some reduction on that front.
• The individual tax exemption limits are changed to

• Senior citizen Rs.2,40,000
• Women Rs.1,90,000
• All others Rs.1,60,000

• Exemption under section 80DD Rs.100000
• Surcharge eliminated.
• Exemption under sections 10A 10B will be extended till FY09-10 end.
• One boost for the working class & a little to Corporates is the FBT is abolished as expected.
• Disappointment on individual level is the maximum deduction allowed under section 24(b) for the interest on borrowed capital for the purpose of purchase of home should have been increased to Rs.2,00,000 or even more sensible Rs.2,50,000, which was left unchanged to Rs.1,50,000.
• Another expected change is the STPI tax holidays are extended by 1 year.
• Tax holiday for exporters extended till FY10-11 end.
• All capital expenditure for the Corporates is allowed for deduction.
• Commodities Transaction Tax is abolished.
• MAT is raised to 15% from 10 %. This is supposed to cover up for the Surcharge & FBT abolition. In return to that the period to carry the loss for MAT is increased to 10 years from current 7 years.
• STT is tweaked to boost retail involvement.
• Exemption under section 80G will be 100% from current 50%.
• Exemption under 80E will be extended to all fields of education including vocational courses.
• Exemption under Section 80IB extended to natural gas
• Section 2(15) extended to organizations that work on improving environment.

Indirect taxes were left largely untouched. Few of the significant changes are as follows.

• Electronic sector customs duty benefits
• Set top box will attract duty of 5%.
• Duty on Wind mill magnets is cut to 5% from 7.5%.

I don’t need to say it differently than the overall market that this budget was disgusting & again a lost opportunity just to keep the promise of letting it be a ‘non-event’. I have been saying it for last 3 years now, since I started blogging this non-event that the Congress & UPA government have just not got the fundamentals of Economics right. This is astonishing & more disgusting because the best economist in the country is the PM. The reason I am saying it because for last 3 years there has been nearly no attention to the supply side of the economy, same is the case this year. All the efforts are targeted towards reviving & pushing the demand side up & thereby driving the growth. Should I remind you that similar thing was attempted by the great Alan Greenspan when he was heading Federal Bank & we all know where it ended. I fear we are just walking down the same path blindly & not ready to learn from the mistakes of predecessors. This is the same reason we witnessed the sky high inflation to the tune of 12.7% & my bet is it will be back again until the supply side is addressed on priority. The biggest thumb down was given to this budget because there was no roadmap for the all talked about & rather necessary reforms for the economy viz. disinvestment, financial reforms, view on FDI & FII. The uncertainty was maintained on it & market hates uncertainty. See where Nifty & Sensex are going, I need not say anything more.

MJ

MJ – two letters are enough to bring the whole picture of the legend in one’s head. The ‘King of pop’ will not perform again in this world. He was scheduled to perform ‘50 comeback concerts’ in London O2 Arena from July 13, 2009 till March 6, 2010. It would have been single highest earning & most popular event in the music would, which now will never take place.

He was no doubt one of the most popular persons of all times. To some he was known for his heart thumping music, to some he was known for the all the controversy came under the title of child molestation, but the one reason he should be known & remembered forever is the message he tried to convey to the whole world for more than half of his 50 year life – Peace. He dedicated very large part of his work & a lot of time for the one noble cause – to make this world a better place for the next generation.

Yes, I do like the most popular singles of his viz. Thriller, Bad, Dangerous; but the ones I really venerate the legend for are The Earth Song, We are the world, Heal the world, Have you seen my childhood, Gone too soon – just to name a few. If you ever had any doubt about the greatness of the legendary artist or his message, I’d suggest you listen to the songs, even better just watch the videos. If you don’t have tears in your eyes after watching each one of these then you can doubt your humanity.

I really think it was curtains on the one of few angels of peace too soon. His work here was not done. He’s ‘Gone too soon’. Of course the Legend that was MJ will live on eternally through his singles but I still wonder, will he rise back from his tomb to complete his work like in ‘Thriller’ or will this day reverse to take us to the glorious past like ‘The Earth song’. For most of the world the news has still not sunk in to make the effect. Many of them are wishing for his soul to Rest In Peace. But there is one thing we really need to do so that he could really RIP – each one of us has to vow that we would do all it takes the to do what he preached for, to make the world a better place for the generations to come – ‘Heal the World’

May we always remember the eternal Legend of ‘King of pop’ for all the right reasons & may he keep doing his ‘Moonwalks’ in the heavens as he’d be doing in the hearts of his fans – amen!

Disgusted by Investment Bankers

I am finance professional with aspiration to become a significant investment banker in the global market. So with the same motive I do keep a close watch on capital markets & respected Investment Bankers of India & world. Rakesh Jhunjhunwala is considered to be Indian version of Warren Buffet & a highly respectable Investment Banker, or so I used to think before today.

The reason the title of the article reads the way it is is that I watched his interview on CNBC TV18 today. Refer this link to get a brief of what he said. I should make a disclosure before I say anything further, I Really used to adore him till today. But in this interview all he was doing is to show that he knows how to count & he knows the technical levels of Nifty. He uttered all possible numbers in the span of 10 minutes or so. Thank god he stopped short of saying that Nifty could see a level of 1500 or may be say 8000 this year.

He said one of the scenarios could be that Nifty hits 6100 or higher then comes back to 3300-3500 & consolidates for 3-4 years at that level. Again in another question to him, he said he is really sure about the GDP growth in India & we could see a double digit GDP growth number in coming years. So now can anyone tell me if he is so sure about economy, then how on earth the scenario he mentioned is possible? To hit double digit GDP growth numbers the Nifty constituents have to grow at least by 20% y-o-y, which justifies a P/E ratio for Nifty of about 20-22 at least. Nifty current earnings are about Rs. 210 for the FY08-09. There is no negative growth in earning of Nifty as a whole. So assume 5% growth on Nifty which is the most pessimistic figure I can come to as of now. This still gives earnings for Nifty of about Rs. 221 for FY09-10 & range for Nifty would be 4400-4800 going by the history. Remember this is my most pessimistic target! So how could you justify a double digit growth for GDP from now on & still reaching levels of 3300-3500 & consolidate there for 3-4 years. There is only one sane explanation for the prediction; India would need to go through one of the worst recessions since 1991. Then may the god help us!

The only conclusion I could reach after watching the interview is that either Rakesh Jhunjhunwala has no clue where the markets would be heading (which I think is highly unlikely) or he is just trying to fool the viewers in the bright sunshine. In both cases I sincerely feel he should not be appearing on TV & expressing his opinions. Because the all the Investment bankers on Wall Street have earned very bad name for themselves in the downfall of Investment Banking as we used to know, & he should not add to the bad reputation. This is really detrimental for the people like yours truly, who aspire to be an Investment Banker & I sincerely do no wish to stand in the line of a breed that becomes most despicable after the politicians of course. So my earnest requests to Rakesh Jhunjhunwala is either guide people to right direction or just say, “I have no clue where market is heading.” or “I would not like to tell you & lose my opportunity to make money from it.”

The end result is I have lost one of my most venerable deities to cheapest level of lying & obfuscating hapless investors who are already floundering in darkness.

Changing money habits

These are tumultuous times, where no one is sure about which way the global economy or the capital markets are going. In such scenario there could be many changes in the way the countries try to tackle the slowdown & recession. So it makes doubly important to keep track of the changes in the policies & adjust your money position accordingly. Here are few changes that took place which could make you change your positions.

The biggest indicator that could signal a bull-run is falling bond yields, which clearly explains the current upsurge in the capital markets. So if you are holding positions in cash or debt, a little portion (@ 10% of your holdings) at this point can be transferred to equity with a long to very long term view. Especially if any of your Fixed Deposits in banks are maturing at this point, you can see that you are not getting as high interest rates on them as you might last year. All the Central banks are pushing the interest rates downwards in order to boost the economy according to Keynesian theory. The sectors that you can look at are Banking & Capital goods, which have been battered badly in the current fall & seem to have considerable upside once the bull-run gathers momentum. Equity diversified Mutual Funds can also be a good option.

There is a clear disincentive in pledging new money to Bank FDs. The Rates offered by banks on deposits may go even more south because of new directive given by RBI on the interest calculations on the savings accounts. Currently the interest on savings accounts is offered on the lowest balance of the account between 10^th & 30^th of the month. This system will be abolished beginning from April 2010 & the banks have to offer interest on everyday closing balance. This changes the Asset Liability Management of banks a lot. The interest outgo to savings accounts will be lot more than current year, so to reduce total outgo they will have to pull down the interest offered on Deposits right from this year to maintain their interest margins consistent. Given the benefit of liquidity Savings accounts could be a better bet to Fixed Deposits. This also works well with current inflation level.

If you are planning to buy your first home & you are well assured of your jobs, you can go in for current Real Estate & Home Loans rates. Do verify the fall in prices in the area you are interested in, if there has not been much correction in prices, you might want to wait for some time as on an average the real estate rates have corrected by at least 30% throughout the country. My suggestion is to go for fixed rate with reset clause after tenure of 60 months (@9.25%) instead of floating as there could be good amount of volatility in the interest rates in coming 5 years & upside risk is high on floating rates.

In all these changes do not forget the basics of liquidity. You need to have fair amount of cash to manage your day to day needs & EMIs, in case unforeseen circumstances force you into joblessness.

Crossroad of life

I'm standing stranded on the clueless isle

Shortest distance to life a cent & one mile

 

My compass asking me for next direction

Searching for even a mirage of destination

 

Sleepless for nights, eyes begin to sore

Wordless hum of wind; can stand no more

 

Walking over amorphous stones in the mist

Wondering if I stumble upon my alchemist

 

In dearth of love, in search of the destiny

Such mundane life trying to make harmony

Raison d’être

I always have been pronouncing myself as a true ‘Agnostic’ person, but to do so without taking opinions of the believers & the atheists equally would just be a prejudice. I always wanted to get the perspective of our great religious manuscripts ‘Bhagwadgeeta’, ‘Koran’ & ‘Bible’ equally. Being a proud Hindu I eventually started with ‘Bhagwadgeeta’ to know what really drives the people to believe in God so blindly. The reason I am a proud Hindu is that I believe that Hinduism is not a religion but a lifestyle in itself & the most important value it preaches is Tolerance. That is one quality the world needs today in abundance.

Let me first explain the true meaning of the word ‘Agnostic’ before I go ahead. Agnostic is a person who believes that you cannot know the whole & complete truth by any means, neither by science & nor by religion. After reading the “Bhagwadgeeta’ I have become even a stronger Agnostic than ever before. There is one biggest reason why I say science cannot help you know everything - the Birth & Death. Science till now has not been able to explain the phenomenon of beginning & end of life as we know it. What exactly happens when you are born or when you die? Today’s science has reached to a stage where you can replace each & every organ of the human being but there is no way to put the life back in a dead body, at least not that I know of. So the science cannot give you the complete knowledge.

But again neither can the religious books; at least I did not get any such enlightenment from ‘Bhagwadgeeta’. I never said I’m an Atheist either. I believe in Lord Ganesha for umpteen reasons. But there are many references in ‘Bhagwadgeeta’ where Lord Krishna says to Arjuna that he is the true origin of everything & you should only pray to him & not to other deities. This is so much against the Tolerance that I believe in. How one God cannot tolerate praying to other God, I cannot know. There have been umpteen references of the ‘Karma’ in ‘Bhagwadgeeta’ but most of them were pejorative. Lord Krishna says that ‘Karma’ binds your spirit in your body & prevents you from getting Moksha (The ultimate liberation of spirit). There have been references where it says that caring too much about your family your mother, father, wife, children is an obstacle in achieving Moksha. It also says that you suffer excruciating pain in your mother’s womb & that’s how the suffering of life starts & you should try to get rid of these cycles of life & death. & there is only one way to achieve it, Yoga (In the version I read the translator interprets it as Praying to Lord Krishna, which I beg to differ to).

All these views are so much against the beauty of life. There are so many beautiful things you can do in your life, such as love, to your mother & father, to your wife & children & to the whole concept of life. If you live life just thinking about the death (& Moksha thereafter) then where & how do you fulfil your Karma? If you cannot truly & fully devote your love to the people who love you & care for you, then how can the God offer you Moksha for doing such heartless deed? There is absolutely no mentioning of the concept of love in ‘Bhagwadgeeta’, if there is anything close to it, it’s again derogatory. Also there has been no emphasis on the females in the ‘Bhagwadgeeta’; not even Goddesses. There has been no mentioning of right & wrong or sins & good deeds as we know them. I can surely say these things thanks to 3 years in my High school when I learned Sanskrit, so with little explanation of tougher words I can understand ‘Bhagwadgeeta’ myself & I’m not completely dependent on the translator’s view for that. (I knew it would come into use some time in life & I’m thankful to the fact that I learned it devotedly at that time!) I must say that these are my personal views & If they hurt anyone’s feelings, then that is not my intention at all!

So in conclusion, this reading of ‘Bhagwadgeeta’ has made me think deeply on a spiritual level. Yes, I do have lot of earthly ambitions that I have to achieve & I am like a million miles away from it, but then again the satisfaction in life does not come from money (& other earthly things) alone. & the sooner you understand this the better for life, as there would be fewer things to repent about later on. I seriously am trying to understand my Karma here, but that surely is not only praying for Lord Krishna alone & may HE forgive me for that.

Some capitalistic recollect!

Well, this recession has given me a lot of time, thanks to the great capitalist concept of lay-offs. So I’m getting some time to do my favourite thing, rumination! I am prone to pretty weird ideas and people close to me can corroborate that. I have been saying in my previous blogs that, it seems the ‘self proclaimed’ greatest capitalist nation - USA has been trying to solve all its capitalist follies by finding solution the communist way. Just look at AIG, Bank of America, and not to mention GM asking for more & more Federal bailouts. All these corporations have been greatest loss maker in the current financial downturn. Well to be precise, GM has been the laggard for a lot longer time, making spectacular losses for nearly a decade now. The very existence of the firm amazes me. Why have they not filed for bankruptcy at the start of this millennium & handed over the assets to a more efficient user like Toyota for crying out loud? What’s wrong in that, especially in the light of US not minding in financing the Federal budget deficit by selling their papers to more efficient (capital surplus) countries like Japan or China (more than $1.5 trillion combined)?

This brings me to my prime objective behind this article, if you really believe in Capitalism then why on earth you are relying on the Communist way to fix up the mess you created with your belief. Why not go back to ground zero & start looking for the clues to rebuild it. I am a firm Capitalist believer & I can’t even stand the idea of Communism. Just to strike an analogy, Capitalism relying in Communism for rescue out of the current financial mess is like Man relying on God to rescue him from the global warming situation. If you have got yourself into this deep trouble then you better think fast & stick to the basics. Well, I’m not just complaining about the situation, I actually have a probable solution in mind.

The fundamental of Capitalism is the Capital of the organization, the entrepreneur willing to take risk for the ideas he believe in. Putting his money & skills to the work to earn profits & name for him. He also can avail loans from financial organizations like Banks or VCs/PEs for funding the cause, but even they ask for the commitment from the entrepreneur in the form of initial investment. Now just look at the Feds from Capitalistic point of view, they are an organization, they have objective, they have budgets, but where is the capital (I mean Owned funds, not Capital Receipts)? In light of the latest budget proposed by Obama Government, which predicted a deficit to the tune of $1.75 trillion or 12.5% of GDP, isn’t this the most inefficient way of running the organization? Now my question is who made the rule that Government has to run only on debt? Why can’t Governments have owned funds? Why Governments can’t be run like non-profit organizations where they are accountable, even though they are not there to make profits but they have to break-even their operations in a consistent manner? Why the same does not apply to the Governments?

Many developing economies are run in the same manner, Deficit budgeting & Inflationary economy are their USPs. Given the situation of global financial systems, there needs a lot to be done to make good the losses made in foolhardy ventures taken over by umpteen organizations. If the Governments are bailing those organizations out, they can ask for capital in return to fund all the deficits they are bearing for the bail-outs. Otherwise this deficit can lead to another calamity in making; we could enter into galloping inflation worldwide, given the short supply of the resources. The point of contention is why the Governments have to be Communistic in design when the whole economy is strong Capitalistic in nature? Desperate times call for desperate measures, but then why not be desperate the Capitalistic way? I believe there are still many strong Capitalistic believers in US who could be willing to take the risk for their belief. So why not let the entrepreneurs do their bit for the revival of the economy? Why not look at the option of running the Government the Capitalistic way? Worth a shot?

One of my friends suggested me this link which corroborates my view.

The Young Managers, Mentors & their values

I recently went through a case study in Businessworld about YMs (Young Managers). It is about the reckless behavior of the Young Managers, their complete disregard to the seniors' suggestions & lack of readiness to learn from & correct their mistakes. Although I agree with most of the views in that case study, the thing that I thought was missing is the wrong values brought forward by today’s corporate culture. Where is the long term view of the things? All that today’s Corporates are worried about is bottom-line growth (Q-o-Q & Y-o-Y) & share price appreciation, at the cost of anything (Remember RJR Nabisco disaster?). Energy situation, Global warming & Sub-prime lending / over leveraged use of Derivatives causing current financial crisis to name a few.

Whilst this is the picture of values that you demonstrate to the so called ‘cream talent’ without significant experience & adequate EQ to get hold of the situation, what do you expect them to learn? The purpose of acquisition of the talent, their utilization does not seem to have any long term view per se. All the chores are directed towards one thing & one thing alone, annual results! How else would you explain the behaviour of cream talent like B. Ramalinga Raju in the light of ‘satyam saga’? All he was concerned about was the Y-o-Y bottom-line with complete disregard to the long term view of the business & the whole industry in turn. Or did he actually think that he could pull it off eternally (or did he not believe in the principle of company as a going concern)?

If the Corporates today were concerned about long term talent retention, would they not spend a significant time on grooming the talent they have acquired? But that is so not the reason of talent acquisition nowadays. The talent is acquired to fulfil a short term requirement, beyond which the utilization of the talent is not known to them. They acquire the talent keeping in mind that they are bound to leave after some period. So no need to spend time on grooming them or inculcating some corporate values in them. Where is the need of mentoring? In light of current financial crisis, the Corporates are offloading the relatively inexperienced talent without even giving them fair chance to prove themselves (again to sustain the short term profitability of the business & to maintain share valuations or what is left of it). After such an experience that is imparted early in their careers, do you expect them to ever be faithful to any of their future employers? Do you expect them to have any values other than saving their own skin at the cost of others? What can a senior manager or a mentor do in a situation like this?

In my view to conclude, the behaviour of the Young Managers of today is not a micro level issue but a macro level one. There are some very serious issues that need to be tackled about the manner in which the businesses are run nowadays. They are quintessential for survival of growth economics & capitalism as we know them.

Revival of global economy

There is no doubt about global turmoil on economic front but there are going to be umpteen opinions about how the global economy can be revived. The evidence is the huge strike called on by as many as 8 unions in France. This has almost stalled the whole country. As we go on from here this could be more than just an aberration.

To move the engines of growth moving as fast as they were a year back, there has to be free circulation of money in the global economy. So far whatever money was pumped into the global economy has been used to make good the losses made by bad assets of the Corporates like Merrill Lynch, Freddie Mac, and Fannie Mae of the world. So more money must be pumped in the global economy to lubricate the wheels of the engine of growth. There are basically two views about the possible quick recovery of the global economy. Let us have a look at them in brief.

One view is that of the governments world over & the actions that they are taking in a little haphazard manner. So far they have concentrated their efforts on rescuing the troubled corporations in their respective countries. So far they have spent as much as $2 trillion in this effort & almost $1 trillion is still in offering. So far the common people have been a mere observer in this preposterous sequence of events. The frequency with which the Corporates were nearing to bankruptcy & the immediate rescue packages declared by the governments to save the jobs in the country & in turn their skin has been astonishing. So should all the hard earned money of the people collected in the form of taxes be spent on revival of the sick companies? Obviously they have not been running their businesses in a correct manner. So isn’t it like rewarding the brats of classes by punishing the toppers. (This looks more like communist than capitalist to me, but hey, that’s just me! This time sponsored by the biggest capitalist, US of A!) This seems to be just an invitation to public outrage.

The second view to revival of the economy could be increasing the public consumption by putting the money directly in the hands of the people who can start spending that, it will flow in the hands of the Corporates who are doing the things right & whom the people trust. This can be done by two ways: by securing & creating jobs of the people working & by boosting the public infrastructure & thereby public spending. (This also is more or less like communism) (So the solution of capitalist follies in communism??? Shock for the American capitalism???)

Obviously in both the cases the banks have to play the role of lynchpin around which the money circulates. But for this the public confidence in the working banks needs to be restored. Both the views mentioned above cannot be executed in isolation but there has to be prioritisation of the actions taken. Should the money left with governments be spent on making good the losses first or should the infrastructure be given precedence over that? Because money also is a rare commodity & is not available in abundance & for free.

Then comes the time to ask who all are responsible for this huge farcical tragedy we got the privilege to witness. Prima facie the responsibility goes to the governments & the Corporates that benefited from the policies followed by the governments such as sub-prime lending & ridiculously low rates of interests for the housing loans & free availability of credit to any & every one. Add to that the lack of infrastructure & transparency in the rating agencies & auditors for the corporations. (Refer my previous blogs for details of this frivolity!) Now it’s time to restore some corporate governance, right after we achieve some government governance.

IT & Employment

The much talked about subject today, the Satyam saga, poses many more questions about the whole corporate governance hullabaloo in the Indian IT industry. The reason for calling it hullabaloo is that last year Satyam was awarded Golden Peacock award for corporate excellence. With the latest discoveries in the case, now they say that even the total employee number in Satyam is also not 53000 as claimed by the annual report, but it is about 40000 & that number was inflated to siphon off money every month.

This is not a small number, the 1/4^th of the staff is fictitious and yet not one person in company raised any eyebrows on it. What are the HR people doing? We are raising questions about the audit people, but we don’t smell the rats that are still sitting in there, employed permanently. This raises questions about the recruiting practices in the IT industry. The already fraught about question is about the bench strength in IT. Hiring the best of the talents in the market & making them sit without work is inhuman & so is hiring them on contract or on vendors roll just to offload them whenever necessary, without much consequence.

The reason to employ people on contract or on vendor’s roll is lack of labour reforms in the country. In India we are not accepting ‘Hire & Fire’ policy for any company. So this is open detour found out by the innovative IT giants in the country. There is no exception to this method, not even the sacrosanct ‘Infosys’. There are so many people being let go by these IT giants in this recessionary time, simply because they needed to save the skin of their on roll, permanent employees. God knows if they are being accounted for! The HR professionals in these companies have become the most despicable people.

No one will raise questions about the ability of the people working on contract or on vendor’s roll, as they all go through the same rigorous process of selection. They would not be in the position if they were not good enough. Another fact anyone cannot deny that these non-employees are the ones who work the hardest in the company with fear & expectation that some day their efforts will be recognized. But when the times like today come, they are made the scapegoats in order to ‘save the costs’. Performance is not the criterion for this dismissal of services. With evidence it can be proved that their performance is better than most of the permanent, on roll staff working on similar positions.

This injustice has to be stopped. Now if all of them were permanent, on roll employees & if Indian labour law allowed ‘Hire & Fire’ policy, all IT giants would be required to rethink a lot before letting these people go and the only criterion for that would be lack of performance. At least there would be a mechanism to address the grievances of the people being asked to leave. Also there would not be any suspicious IT vendors whose only job is to beguile people into work on such high risk profiles, where contradictory to rule the returns are very low for the people who actually bear all the risk. The ‘bull-shit’ in the HR practices in IT industry has to stop. In my opinion the Satyam employee fraud would have been committed through similar means. These contract or off-roll methods have to be stopped or brought under better scrutiny & take my word for it, many more frauds in Indian IT industry will be brought in the daylight.

If at all India is thriving to be a superpower in coming years, first thing they need to do is to get the employment laws in the country right. I know, this would get their cost a little up, but it will not jeopardize the cost competitiveness of Indian companies & instead it will bring in some transparency & in turn brand value in the most ill-organized part of organizations – employment & HR!

Unveiling the hoax

In the view of recent collapse of 4th biggest IT firm in India, namely Satyam. A great paradox! The word ‘Satyam’ means truth. It’s a tight slap in the face of the clamour that Indian IT industry was making about the highest standards they were maintaining in Corporate Governance. What is more painful is that this fraud on the statements & balance sheet was being carried forward for last 7 years, as per the disclosure given by B. Ramlinga Raju, the Promoter & Mentor of Satyam & in turn the IT revolution in India. The whole sequence has left the entire IT & Telecommunication industry shamefaced.
But there is something positive to take from this all. The investors the world over now understand that no one in the world is so sacrosanct to take their word blindly. The extent of this fraud is so horrific that no one knows the truth anymore. No one knows the value of assets & liabilities Satyam holds, the actual turnover it has or for that matter anything in the annual reports. As per the statement given by the caretaking head Mynepalli, they are not sure whether they have enough cash to pay the salary to the staff for Jan 2009.
In such a scenario no one would dare bailing Satyam out or even buy them out, even if it comes to a value of Re. 1 per share. This all was followed by unveiling few more scams in the making. Raju was about to siphon off $ 1.6 billion to his other flagship company Maytas Infra. Which luckily for the investors was discovered by media in time & Raju had to drop the idea. It followed by another event as World Bank banned Satyam for 8 years, because of data theft cases that came out in past few years.
Infosys has come out & publicly announced that they will not absorb any of the staff of Satyam, even on senior positions. They are partially right about it, as no one knows to what extent this scam goes. How can one hide a scam of an extent of Rs. 7000 crores i.e. $ 1.75 billion without having many of the staff accomplice in it. The only salvage for millions of investors is that Raju has been arrested & will be presented in the court. But the problem still is that India does not have its own version of Sarbanes Oxley Act which protects the investors’ interest. Indian counterpart of US SEC namely SEBI is a toothless tiger that only makes noise but can’t bite. This would give a big time wake up call to the bureaucrats & the lawmakers to come up with better mechanism than they have to avoid such instances in the future. At least this will get the economic reforms moving, that had been stalled since the existing government came into power and it’s been 5 years now!
The worst part of this fiasco is that it came in time when it was least needed. Whole world is crumpling under the pressure of recession & joblessness. This even has the potential to pull India into it, which so far was still hopeful of clocking growth of 6.5% in the current fiscal year. But the timing of this fiasco could not be just a coincidence; the scrutiny needs to check where all this started & how. My gut feeling is that, it all started with the dotcom burst in the Y2K. It makes a perfect sense that, Satyam should have collapsed in that burst, but thanks to innovation shown by Raju it not only survived but also was a symbol of strength. When other companies like Infosys, TCS lost their 40% of market cap in the IT slump of 2007, Satyam had lost barely 20% of its. The reason of the strength was impeccable forgery that none of the analysts could suspect.
Biggest question now for the investors is that what the auditors were doing when they signed the Auditor’s reports for all these years. This even has taken world’s trust away from the world’s big 4 accountancy & audit firms. As if the Arthur Anderson’s follies in Enron’s case weren’t enough, PriceWaterhouse Coopers wanted to test the wisdom of the people to discover another scam. Possibly we’ll now be left with only big 3 of these firms or may be we’re on the verge of all new accountability standards which brings some amount of trust back in the business. The stock market watchdogs world over need to come up with some better mechanism than current state of auditors & credit rating agencies. With the current sub-prime crisis & no. of scams that have come out in the recent times, we have all the reasons to question their business models & their integrity towards their profile.
Let us all hope that the outcome of this scam will bring some of the positives that the world has been waiting & longing for. It’s about time that we see the positives of globalisation, put our brains together to innovate the solution.