The modern thinking Indian

This must have been the shortest austerity campaign in recent times; the Congress Government, in a measure to try to get some political points, decided to try and make a show of an austerity program. Hence, 2 ministers were evicted from their hotels (even though they were apparently paying for their stay out of their pocket) and told to stay in the State Guest houses, ministers were told to fly economy (and the whole country had fun when the apparent discussion inside the cabinet where many opposed this campaign was exposed); then you had the spectacle whereby Sonia Gandhi and Rahul Gandhi went by mass consumer transport - Sonia Gandhi by an economy ticket, and Rahul Gandhi by train. It was soon that the press highlighted the costs, with many more tickets booked inside the plane and train for security reasons. Further, there was grumbling about how SPG security is based on surprise trips where no one knows the exact transport, and here there were press people along with Rahul Gandhi.
The press took up this campaign in right earnest, with the first fun involving a Congress MP on the same flight as Sonia Gandhi, who had to give up his first class seat in order to come back to economy. And then the press took up the actual costs that politicians spend on their office, on their vehicles, and so on, to the extent that the Government would have regretted going on such a campaign. None of our politicians of the day are the renunciation type, the saint type, and all of them like their luxuries.
In some cases, it is downright foolhardiness. When a Minister goes abroad for a conference or a discussion, you need the Minister to be rested and relaxed, now bone-weary after multiple flights cramped in economy.
The biggest problem is that instead of focusing on areas where the Government can really save money, it is looking at cosmetic show effects. If the Government were to focus on leakages in social sector programs such as the Employment Scheme, the PDS, do project completion in time and without cost over-run and try to reduce the corruption endemic in the Government, it could save incredible amounts of money. But there is no gain in taking such an effort, that removes money from middlemen down the line.

Labels: Austerity, Congress, Corruption, Finance, Governance, Leakage, Money, Politics

If you have ever stopped to look at the online credit usage you would have done (including reviewed the information you were asked to provide), it would seem extremely easy to use somebody's card and use it for buying stuff. What is it that you need to provide in terms of information when using your credit card online ? You go to a site, decide to buy something (maybe jewellery, maybe some electronics goods, or something that can be delivered instantaneously such as software) and are asked whether you need to pay through a credit card, using the much hyped secure card payment gateways (that use '128 bit encryption security', and are from well known banks).
Think for a minute about the information you provide online; you typically provide the following information:
- Name
- Date of birth (sometimes)
- Card Number
- 3 / 4 Digit security code at the back of the card
- Validity period of the card
Now, if you had gone to a restaurant, and paid by card, the person taking the billing (waiter, cashier) would already have all these details (except for Date of Birth), and for that, if they ask you to fill a card containing personal details such as DOB and anniversary, most of us would fill that already. That is enough for them to use that card details online, and in many cases, this goes undetected, or detected only at the end of the month. So why is nothing being done about this ?
Well, something is finally being done (link to article):

If you're an online shopaholic, make sure you have a personal identification number (PIN)/password for your credit or debit cards. Otherwise, forget about using them for internet shopping from August 1. A recent directive by the Reserve Bank of India makes it mandatory to have an additional authentication passcode verified by Visa or MSC (Mastercard Secure Code). This is in addition to the other information already on the card like name, card number, expiry date and CVV (card verification value) number
So how do you get this new password? Credit/debit card users have to register online with their banks, giving personal and card details. They will then be given a PIN or password to be be used as an additional layer of security at the checkout point before completion of the transaction.

So, if you did not know about this directive, and wonder as to why your card does not seem to work online anymore, now you know the reasons for the same. So, go ahead, and contact your bank for getting the confirmation. As to whether this is fool-proof, only time will tell.

Labels: Bank, Credit Card, Finance, Fraud, Money, Online Transaction, RBI, Safety, Security

When the Congress Government came back to power with an enhanced mandate and higher numbers (and consequently, a less dependence on allies to make up its numbers), the markets welcomed the step, with people talking about a re-start of the earlier stalled divestment process. In fact, with the amount of money that the Government has committed towards its ambitious social welfare programs, it needs to arrange for large sums of money to fund these programs. The disinvestment program seems a good way to arrange money for these programs. However, not everything seems to be going the same way for the Congress; even though the allies are lower in number, the opposition from them is still prevalent.
Right now, the 2 main allies of the Congress, the Trinamool Congress of Mamta Banerjee, and the DMK of Karunanidhi seem to have problems with the policy of disinvestment. The DMK is opposed to the policy of disinvestment for those Public Sector Units that are located in Tamil Nadu (these PSU's are a source of public patronage, and the DMK needs to ensure that continuous patronage opportunities remain). The poltician belonging to DMK and Karunanidhi's daughter, Kanimozhi, made a statement against the process of disinvestment as well (link to article):

In the Rajya Sabha, the Congress-led government's new agenda for disinvestment faced opposition from its key ally DMK. The DMK's opposition to the government's disinvestment policy echoed in the Upper House with party MP Kanimozhi arguing that generating revenue by divesting the PSUs would not help. "I welcome that the UPA government has laid a lot of emphasis on welfare schemes and on social sector spending. But we also have to keep away from the temptation of generating revenue by disinvesting our PSUs," Kanimozhi said
Another important ally, Trinamool Congress, has already made it clear that it would not allow rampant disinvestment of the PSUs. Though the party has not yet made its stand clear in the House, party chief Mamata Banerjee opposed some of the `radical' ideas when the draft of the President's address was discussed among the cabinet ministers, Trinamool sources said.

Principally, the Government has no role to play in many of the sectors of industry ? After all, why is the Government in the business of running airlines and having to spend huge amounts from taxpayer's money to prop up Air India, or be in the business of telecom, or in financial industry, or many other similar areas. These are then totally dependent on the whims and fancies of the Minister (even for a critical area such as Road building where the previous Minister had a big hand in the slow down of road expansion).
Further, when the Government does want to disinvest, for sectors of industry where the Government should have a zero role, it should get optimum return. This is not possible through the normal case where the Government disinvests its shares while maintaining a 51% stake in some of the PSU's. For PSU's where a Government stake is not critical, it is better to follow the earlier Government (NDA) policy of strategic sale whereby the Government sells its controlling stake to bidders. This results in a much higher return, and is the optimum way to get returns from the disinvestment process.

Labels: BJP, Congress, Disinvestment, Finance, Money

What should a person look for when to invest in the stock market ? The stock market is always said to be a reflection of the economic future of the country, and in the view of many experts, seen to be an indicator of the next 6 months to 1 year. So what does the future say for the country ? You need to be cautious, monitor the sectors of the economy that are not so affected by the company, look at market value of companies as opposed to their book values, look at their future potential, and so on.
Well, the last few months have been a major shakeout. The world economy is projected to have an overall negative growth or zero growth with most developed economies contracting (in fact, China and India are supposed to be among the few countries that are still growing). Scratch the details, and you see how things are pretty bad. The United States is going through a recession not like what it has seen for decades, with consumer sentiment way down. Jobs are being shed on a huge scale, industries are down, and major corporations are reporting losses or sharply reduced profits. Obama is pushing huge packages in order to try and turn around sectors such as finance, housing, auto, etc, but the economy is very slow to respond.
The slow-down in these developed economies has had a ripple effect on economies that are export led, such as China, East Asia, and even India. Sectors such as textiles, IT, gems, etc have been impacted pretty badly. At the same time, the overall sentiment is badly negative, and this has impacted growth in sectors such as Finance, Realty, Construction, Auto, name it, and the sectors are impacted. Industry is looking at getting good encouragement from the Government, but in an election year, populism is the key. At the same time, since inflation is down below 4%, one can expect some key monetary steps such as reduction of interest rates to try and boost the economy. One needs to evaluate companies that are well run, fundamentally sound, and does not indulge in unsound practices.

Labels: Company, Economy, Finance, Future, India

The scandal about Satyam just refuses to die down. There are so many questions that remain open, and there is the major feeling that even though the Central Government took quick action once Raju had come out with his confessional statement, the state Government of Andhra Pradesh is not being so open. Before Raju had made his statement, the Chief Minister, Rajshekhar Reddy had made a statement to the effect that the aborted merger was over, and people should get on with their lives. No reassurance about watching out for a company that was the star of Andhra Pradesh and employed 50,000 people. And just a few days after the Chief Minister dismissed all warnings, the Satyam Chief went ahead and wrote his confessional note. And after this, the Chief Minister had nothing to say.
Now, there are so many open questions that it seems that there are so many mysteries to resolve, and the former Satyam Chief is sitting in jail, with some police investigators getting access to him. For some arcane reason, SEBI investigators are unable to get access to Raju, currently in jail (The Andhra High Court has refused SEBI the permission to do so even though a huge amount of investor money went down the drain).
- How many employees does Satyam have ? There are multiple reports about whether it has 53,000 employees or it has a lower number of employees with contradicting statements from the board and from the public prosecutor
- How did Raju divert money away from Satyam to the extent that a software company that has a large margin is very low on money ?
- What are the exact details of the Andhra Government support to Maytas (a company also run by Raju and his family) ? It has a huge amount of Government contracts that are now in jeopardy. In fact, the contract for the Metro was so controversial that the head of Delhi Metro (Mr. Sreedharan) stepped away as a consultant with a talk about this being an unfair contract (and the Andhra Government threatened him with a defamation lawsuit).
- Why has the investigation into this huge fraud case not yet handed over to a central agency with the ability to do a financial and criminal investigation both ?
- Will the money that has been diverted away from Satyam ever be recovered ?
- What was the level of interaction between Raju and the Congress Government of Y Rajsekhar Reddy ?
- What was the exact role of the auditors given that they appear to be grossly incompetent, and maybe involved in a criminal conspiracy ?
There are so many other questions, and yet there are no good answers. The investigation is continuing, but already questions are emerging about whether this is a fair investigation, or whether this is an attempt to try and protect Raju. For a scandal that is India's largest and casts a negative impression on the overall positive India story, the investigations needs to be time-bound and very thorough.

Labels: Corruption, Economy, Finance, Fraud, Investigation, Police, Politics, Punishment, Stock Market

India has seen corporate scandals in the past, but never one of this magnitude. A software company, touted as a success story, the 4th largest software company in India and one that services around 1/3rd of the Fortune 500 companies, the events of the past one month have been a total shock. They have called into question the entire range of issues related to ethics, corporate governance, fiduciary responsibilities, professional auditing, and so on. There will be a lot more soul-searching that will happen, a lot more inspection and suspicion of other companies, search for more skeletons in the cupboard, and so on.
What has Mr. Raju brought forward. Starting from the surprise news about Satyam trying to buyout the realty companies, Maytas (run by Mr. Raju's sons), this is almost like a film story. The news about Satyam using its huge estimated surplus of more than $1.2 billion to buy companies related to the promoter (especially when the promoter held only 8% shareholding in the company) was a huge blow to all norms of corporate governance and met with huge resistance. Seeing this resistance, the company decided to roll back this proposal, but things would not stop from that point onward.
The issue kept on snow-balling, and when a popular issue comes up in the press, they can push at all areas and get more secrets out. So, questions started being asked about respected board members such as Vinod Dham as to whether they asked the right questions and acted in the interests of the shareholders. Other news started disclosing that actually the promoters had already pledged all their shares and effectively could be actually holding no stake in the company. And then the World Bank announced that in continuance of an earlier investigation, Satyam has been found to have a great many security problems with their last work (including probable sniffer tools and a data hole), and hence Satyam has been banned from further World Bank contracts. By now the independent board members had started resigning.
There was a lot of news about how attractive Satyam could be because of its huge holdings of cash and high book value vs. the value of shares, and then there were even more reports questioning whether Satyam really did hold onto these reserves.
And now, finally the CEO of Satyam has revealed all. The company was cooking its books, and once started, there was no going back, and hence the company eventually has declared reserves to be $1.5 billion more than what they actually hold.
All this came as a huge shock to the people of the country; how can such respected promoters actually commit this huge fraud, can one really believe them now when they say that they did not benefit ? What were the independent auditors (Price Waterhouse Coopers) doing when they were doing audits since 2001 ? There are already too many jokes about lawyers and accountants, so maybe this was another reason why accountants cannot be trusted. Is it possible that only a few board members and CEO knew about this, and no one else ? This was money that was supposed to be coming into the company, how can senior management (besides the promoters) claim that they did not know ? There are too many questions, and one wonders as to whether all this will really become clear ?
Now what happens ? Well, it is not like Satyam is bankrupt - it still has a large number of clients (although some of them would want to bail out), it has a huge number of people on its rolls (50,000), it is a huge part of the reputation of Hyderabad as a big IT city, and there are still institutions who hold a huge amount of the company's shares. It is difficult to let such a company go out of business, and one expects that there will be pressure to ensure that while the investigation goes on, the company is retained as a going concern. However, the US has a law where auditors and the company's management are responsible for the accounts of the company, and this is a blatant violation.

Labels: Company, Economy, Finance, Fraud, Investigation, Software

If you have been reading the financial papers for the past 2 days, you would have realized that suddenly something seemed to be happening at Satyam, and if you were more interested, you would have read that suddenly Satyam seemed to be in the eye of a storm regarding issues of corporate governance. It all started when Satyam announced that it was planning on spending $ 1.3 billion on diversification, and that too, this amount would have been spent on buying Maytas, a company in which the promoters of Satyam hold a 35% stake. This was not a deal that was approved by shareholders, and apparently not even by the board.
The shareholding of the promoters in Satyam is only 8%, with institutions holding a majority, and this action by the promoters saw an incredible reaction on the stock exchange. Immediately after this move, there was a reaction from shareholders, with the ADR on the US market falling by 52%. The next day, financial newspapers unanimously denounced this move as a gross violation of all norms of corporate governance, and in moves that would have scared the promoters, institutions threatened to review whether there is a trust in the management of the company.
Now, this proposed move has been withdrawn, but has left a mark on the management of the company that is difficult to get away; it will take time before the trust quotient can be restored:

Even as Satyam's deal to buy Maytas had to be hastily annulled in the wee hours of Wednesday morning as the company lost 52% on its ADR listed on the New York Stock Exchange (NYSE), a credibility crisis has begun to grip India's fouth largest IT company. "How can we trust the management of this company and its board of directors after it tried to enter into a deal that prime facie would benefit only the promoters who just own 8% of Satyam ? We have to examine whether the management needs to be changed," cried analysts in a reflection of the deep anguish caused by the now stymied move.
"58% of Satyam is owned by FIIs and they had no inkling that such a deal was in the works. There were questions about the future of Satyam after acquiring these companies when it doesn't have any experience in these businesses. It makes more sense to deploy your funds in related businesses or pay your investors," said Sourav Mahajan, analyst with Karvy.

The company is doing fire-fighting, but this is not the US. In the US by now, with a company promoters holding 8% and with such a move, there would have a far more critical reaction. Here, institutions typically do not show much emotion even when they hold a majority of the stake in the company; in fact, the public and private displays of reaction is unprecedented. This reaction is obviously not what Satyam was expecting.
However, one expects that with the share buyback announced after this as an attempt to mollify shareholders, there may not be much beyond what has been stated; the management of Satyam (and other companies) would be a bit wiser about what they can do or cannot do. What remains true in this case is that the board of the company proved ineffectual, and needs to be looked afresh.

Labels: Corporate, Finance, Governance, Image

The recession word is haunting markets the world over. The US was already in recession, and given its status as the driver of the world economy, it is not a good portent for the rest of the economies all over the world. Other economies are starting to get badly affected; the collapse of an economy such as Iceland typically is of concern only to the natives, but a recession in countries such as Germany (the largest powerhouse of the European Union), slow growth in Japan, reduced growth in China, all of these are very bad portents that the situation will get much worse before it gets better.
In India, things are getting bad. Reduction in inflation to less than 9% is the only bit of good news, else the shake in consumer confidence has had a drastic effect. Entire industries such as textiles (hit by loss of exports), IT (because of reduction in IT spending in the US), Consumer Goods / Auto (because of loss in confidence and hence reduction in spending), Realty (massively hit because people are unwilling to commit), Airlines (massive losses so far), and numerous other industries are being hit.
So, in the space of a few months, the Government and the RBI are trying to reverse all the measures they took earlier, such as a tight credit scene (they were trying to cut inflation, but also cut industrial growth due to the tight credit squeeze), the Government is willing to give measures to improve the lot of airlines, banks, mutual funds, and so on; with this being an election year, the Government will also try to ensure that they will do what they can to bring back the good times. The biggest question is about whether the Government can do anything substantial, other than wait for these recession times to pass over.

Labels: Economy, Equity, Finance, Problems, Property, Stock Market

The Left is waxing eloquent over the current economic problems sweeping all over the globe. The Left parties, represented primarily by the CPM in India, claim credit for opposing FDI in insurance upto 49%, for preventing full capital convertibility, for banking sector reform, and so on. In addition, they claim credit for such social alleviation schemes such as the National Employment Guarantee Program, the farmer loan waiver, prevention of expansion of the SEZ Act, etc. In this, the Congress has also come to the forefront, claiming that it was the slow and measured pace of implementation of reform that led to the country being reasonably insulated from the global mayhem, and by preventing pension fund deposits into the stock market, they prevented loss of money in the pension funds (due to the stock market crash). As further proof of the re-emergence of their way of thinking, they quote the recent interest in Marx and his books.
What a lot of bull. If you compare India with other countries around the globe that were in a similar situation just 20-30 years back, many of them would have suffered much greater economic turmoil than in India, but, and mark this point, even with all this turmoil, these countries have a per capita standard of living which is much better than that afforded to a majority of Indian citizens. For decades after independence, India used a socialist state-controlled approach to growth, and ended up with a small incremental growth level of 2-4 %. Combine this with a population growth of a similar percent, and you end up with a continued high level of grinding poverty.
It is only when the state let go of some of its controls and allowed private enterprise to grow did we start seeing a higher rate of growth and a trickle down effect of the growth starting to reach lower sections of the population (by lower, I mean lower on the economic plane). What India needs is more release of the merits of private enterprise, more openness. What one needs to recognize is that the economic turmoil growing through the US is the result of the regulators failing in their duty, and not the failure of capitalism. Currently, everything seems bleak, and that is because this seems like a terrifying recession. However, every recession comes to an end, and when the next growth phase starts, we will all be enjoying the merits of free enterprise and a faster rate of growth.

Labels: Depression, Economy, Finance, Growth, Left