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.