Any takers for Unified India?

May 21st, 2009

India, year after year, returns a good number of people to the Forbes list of billionaires. Two of them have broken into the top echelons: Lakshmi Niwas Mittal and Mukesh Ambani. Any person from Pakistan is yet to find a place on the list. Several Indian companies have done stunning acquisitions all over the world in the last few years. How many Pakistani takeovers have you read about? Many Indian companies have attained global scale of operations. Case studies are done on them in business schools across the world. Again it will be difficult to find anything from Pakistan here.

India has its problems. But there are signs of success as well, especially in the world of business. India’s businessmen are the new brand ambassadors of the country. The same is not true of Pakistan. A visit to any Pakistani news website will bring out what consumes the people there. The main news, nine times out of ten, will be on sectarian violence or the military offensive against the Taliban. You will be hard pressed to find business news on the home page. The columns and the blogs bring to light the angst at the primitive ways of the Taliban and other extremists. There are people there who want none of all this and are not afraid to raise their voice. But it is a tough fight. The Taliban may have suffered a setback in the Swat valley but this is not the last we have heard of them.
There is still a section of the radical school in India which believes in Akhand Bharat (Undivided India). Given the current state of Pakistan, do they still hold on to their dream? It is without any doubt now the most dangerous place on earth. 
Two countries separated at birth now live out different destinies. It is a story straight out of a Bollywood film. But the portents are ominous for India. A volatile neighbor is a dangerous proposition. This is a challenge the new administration will have to handle deftly.

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What made some companies exit the race for Satyam?

April 15th, 2009

The numbers show the interest Satyam had generated amongst prospective buyers. No fewer than 149 registered first. Out of these, ten submitted expression of interest. In the next lap, three were rejected and three didn’t show up. Cognizant exited the night before the bids were open. Finally, Tech Mahindra bid higher than Larsen & Toubro as well as WL Ross & Co. and bagged the troubled software company.
The question that is waiting to be asked is, why did so many people exit the race? The stock answer is the huge liabilities Satyam faces. There are the 13 class actions suits running in the US, Upaid wants to extract $1 billion on a forgery case, Rajus have laid claims to Rs 1,230 crore that the company owes them.
The first two can be settled out of court. The final damage could be a fraction of the original claim. The Central Bureau of Investigation has said that it found no trace of the money that the Rajus claim to have pumped into the company to plug the hole their misdemeanors had caused. So that too can be contested in a court of law. (Incidentally, companies controlled by the Rajus sent out letters to Satyam the day after Ramalinga Raju made his infamous confession on January 7 claiming the money back.)
One factor that seems to have been missed by commentators is real estate. In the weeks following Ramalinga Raju’s confession, there was widespread suspicion that he had taken money out of Satyam to buy properties for Maytas Properties, a closely-held company of the Rajus. The plan, it was said, was to sell these properties, book profits and quietly put the money back in Satyam. The Union Corporate Affairs Ministry’s plan to supersede the Maytas Infra and Maytas Properties boards just added to that belief.
At least one suitor even made a secret trip to Hyderabad to verify the facts. The import was simple: Anybody who got control of Satyam would also get Maytas Properties. Remember, the valuation of the company for its ill-fated acquisition by Satyam was well over Rs 6,000 crore. Though Ernst & Young, which was quoted as having done the valuation, said it wasn’t for an acquisition, most people felt it wasn’t too off the mark.
 But the cookie crumbled when the Corporate Affairs Ministry could bring no evidence of fund diversion before the Company Law Board. The Central Bureau of Investigation too in its charge sheet said there was no evidence to suggest siphoning out of money. That is when some of them could have lost interest.

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Fraudster or martyr?

March 23rd, 2009

It’s been over two months since B Ramalinga Raju confessed to cooking Satyam’s books for seven long years – for 28 quarters he faced shareholders, research analysts and his employees with a straight face. That he is guilty of the monumental fraud, everybody is convinced. That he is all evil, not everybody buys that. 

People in Hyderabad still talk without reserve about the excellent work done by his charitable arm, EMRI, which runs an emergency ambulance service throughout the state. Help reaches any person in distress in less than half-an-hour. One-third of the calls are for deliveries. The drivers never accept a tip. In congested areas, paramedics reach the patient on two-wheelers. A man who gave almost ten per cent of his time to this kind of work, how could he defraud the company he had founded? Disbelief and shock linger on. 

There is another thought gaining ground. Ramalinga Raju inflated the accounts only for the good of Satyam, so that it could hold on the marquee clients. He did not take money for personal enrichment. In fact, he pledged his shares to fill the gap. And once the situation became unmanageable, he took the entire blame upon himself so that Satyam could survive. At least this is what his fiends would have us believe. 

All of this is yet to be heard in a court of law. So it is still early to jump to conclusions. But some things in this version do not add up. Ramalinga Raju said nobody else was aware of the falsification of bank deposits, except his brother, Rama Raju, Satyam CFO Vadlamani Srinivas and himself. What about the Satyam employees who handed over the certificates (which now clearly appear forged) to the auditors? What about the auditors themselves? For 28 quarters they failed to find anything amiss! 

The real profit margins that Ramalinga Raju talked about after removing the false accounts were ultra-thin. The industry average is far superior. If this average is used, Satyam’s actual bottomline would appear much better than what Ramalinga Raju claimed. What about the banks which must have got the Satyam annual reports which carried details of the deposits? Did they not bother to check the numbers? 

What about the family members? The shares in Satyam were held by their holding company called SRSR Holdings? Did they not enquire why the shares were pledged? To what use the money so raised was put? The investigating agencies have their hands full. The sale of Satyam will not be the end of the matter. 

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Death of an executive

February 18th, 2009

Neelkanth Ratnakar Dongre died last week. He was 64. No obituaries were written. Except for friends and family, nobody seems to have taken notice. But those who have followed the capital’s corporate scene closely will tell you that his life was an extraordinary journey of ups and downs. 

He started out in the 1960s at DCM – it was called Delhi Cloth Mills at that time and was a great training ground for executives. Quickly, he entered the good books of Lala Charat Ram, the youngest son of Lala Shri Ram. In the 1970s, when one of his factories in Kolkata as besieged by agitating workers, Dongre loaded all the papers in a truck, smashed a wall to make way and drove the truck all the way to Delhi. 

At his home in an up-market South Delhi neighborhood, Dongre kept a room full of medals and trophies he had won when he was young. I never like to lose, he would often say. 

Lala Charat Ram too relied explicitly on him. On overseas trips, Lala Charat Ram would quietly upgrade Dongre’s hotel room. So much so, he gave all powers in the group after it split in the late-1980s to Dongre and not to his two sons, Deepak and Sidhharth. Together, they formed what came to be known as the Charat Ram-Dongre group. The two were together in a number of businesses – hotels, real estate, automobile components, trading, furniture etc. 

In his autobiography, Lala Charat Ram sang fulsome praises of Dongre and had only harsh words to spare for his sons. It was an open secret that Dongre had become the bone of contention between the Lala Charat Ram and his sons. They saw him as a usurper who was trying to take what was rightfully theirs. 

Then things took another turn in the late-1990s. Charat Ram and his sons made up and Dongre overnight became a liability. After a bitter boardroom battle, he was evicted from most of the companies and consigned to the margins. The inevitable had happened – blood runs thicker than anything else. Lala Charat Ram died some time back. Now, Dongre too is gone. But the uncomfortable question remains: Can an executive ever replace family? 

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Private scams

February 17th, 2009

Ever since the Satyam scandal broke out in early January, unsuspecting Indians have once again got to see the seamier side of India Inc. This is a big blow to Indian businessmen. Otherwise, they were role models for the youth. They bought assets all over the world, hobnobbed with global decision makers, rode in fancy cars and created wealth for all. They were unstoppable. 

The halo around them was akin to the one that surrounded our armed forces till late when the rot in defence deals got exposed. Even before that, leakage from the Canteen Stores Department to the market place was a well-oiled operation. But it was never talked about. 

Corruption in the armed forces could be the subject for another piece. What concerns us here is the rampant corruption in the private sector. It has been institutionalized so well that most of us never even get to know of it. Kickbacks on orders, commissions on contracts – it is all an accepted part of the country’s corporate culture. 

In good old days, the owner of a company would more often that not keep the “purchase” function with himself or a family aide. Why? Your guess is as good as mine. All household expense, extended foreign junkets were all billed to the company. Family members were placed at sensitive positions. 

Before it was dismantled in 1991 by the PV Narasimha Rao-Manmohan Singh combine, the” licence, permit and quota” Raj gave Indian businessmen a unique set of skills – environment management. A businessman was known best for the bureaucrats and ministers in his pocket than his business acumen. Business houses which claimed licences and sat on them to create shortages were exposed a number of times. 

Liberalization came to us 18 years ago, but nothing has changed. Satyam has shown us that. The all-powerful promoter can do what he likes. 

At the executive level too, things are equally bad. For instance, money often changes hands when advertising accounts are given out. If there is any laxity, crores are siphoned off in no time. 

Forensic experts will tell you that there is a deluge of cases involving senior-management fraud these days. Most of these revolve round cooking the company’s books. As their bonuses are linked to the company’s financial performance, they have been found to park expenses in subsidiaries, move stocks to the dealers, book fictitious income etc. 

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Who first thought of the Big Push?

December 9th, 2008

Governments the world over, rich and not-s-rich alike, have announced they will invest billions of dollar to prop up their economies. Money has become dearer and jobs everywhere are being brutally axed. Paranoid consumers are reluctant to make new purchases. Governments want to solve this situation by putting money in the hands of consumers. Keynesian economics is back in the reckoning after decades in the cold storage.
John Maynard Keynes (1883-1946) was a British economist who gained huge recognition after the Great Depression. Any government, he argued, needed to spend large sums of money to stimulate a slow-paced economy. The counter argument was that it ran the danger of crowding out private investment. It was also seen as interference in a perfect market economy – resources would be diverted from what the market forces needed to what the government thought was important.
But when he espoused his views in the mid-1930s, Keynes hit the popularity charts almost instantly. He gave mainstream economics its life breath back. Russia was making rapid strides with its planned economy when the Great Depression stuck. Because it had little contacts with the rest of the world economy, the meltdown left it totally untouched. Influential statesmen, including Jawaharlal Nehru, began to doubt the ability of free markets and private enterprise to sustain themselves. The answer was first provided by Keynes.
Or, was it? There is evidence that an Indian king used similar tools to rejuvenate a slowing economy almost 150 years before Keynes published his famous work, The General Theory of Emplyment, Interest and Money. Asaf-ud-Daula (1748-1797), the fourth Nawab Wazir of Awadh, moved his capital from Faizabad to Lucknow in 1775. Nine years later, in 1784, Awadh was visited by a devastating famine. It brought all economic activity in his kingdom to a standstill. All rural demand collapsed and consequently the factories in the kingdom too stopped.
It was then that Asaf-ud-Daula embarked on a huge initiative to build magnificent monuments and palaces in and around Lucknow. And for this he spent liberally from the royal treasury. All of a sudden, there was work for people and the Awadh economy soon came out of the slowdown. Till date, people in Lucknow say when they get help from unexpected quarters:
Jisko na de maula, usko de Asaf-ud-Daula
(Who is ignored by God, is taken care of by Asaf-ud-Daula)
So, who first thought of economic stimulus, Keynes or Asaf-ud-Daula?

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