Reality Check India

Thoughts on Satyam and tax holidays

Posted in Uncategorized by realitycheck on January 7, 2009

So the real reason behind the outrageous Maytas acquisition bid is now out 

Here is the full text of Raju’s letter to the board

Meanwhile, Mr Raju has gone underground. This is also standard practice in India while appropriate legal help is arranged.

It is highly unlikely that no one else knew about this fudging. It is hard to pull off inflating revenue numbers without forgery.  Why did the board not not speak up or ask questions ?  What about the gyaan-dripping independent directors ? They are paid upwards of Rs 1 Lakh a month for hardly any other work !! The answer might well be cultural. We Indians are trained from childhood to accept ‘elephants in the room’ and  ‘turds near the food plate’. We also worship entrepreneurs who hustle. I read atleast three magazines over the weekend which lavished praise on Swan Telecom and Datacom and Unitech for major foreign deals worth billions.  Yet, Swan will not win any entrepreneurship awards next year even though they would have earned 10x more money than all other nominees put together. Wink Wink.

What now ?

Satyam unfortunately also has the Upaid litigation that is due later this quarter. So any acquisition would have to factor into account the possibility of losing this case. The 53,000 employees (now even this number may be suspect) are now left in the lurch. Those who possess visas might be offered jobs by other entrepreneurs. A few might be hit hard. You have to feel bad for them because it could not have come at a worse time. A few birds like Tech Mahindra are flying over Satyam trying to pick up specific clients and projects (like Telecom).

So, what did the IT tax holiday give us ?  For 25 years we have made it a national priority to make these IT companies cash rich. Come earnings season we are subjected to Udayan and others go on about “Infosys/Wipro/TCS is sitting on a mountain of cash”. This is jarring for a few but most of us will ignore this elephant in the room.  What will happen if you load these companies with so much cash far beyond their investment requirements ?   We dont even question them when they claim every year that they are going to hire 30,000 employees which can easily be proven to be rubbish.

This IT holiday which was previously in the STPI regime is now simply rebranded as SEZ.  Everything is designed to rob the nation of valuable tax rupees. Of course, a large chunk of the goodies will be distributed to all parties by shady gentlemen in the wee hours of the night.

Thats all for now. More after I read and watch the news later tonight.

13 Responses

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  1. Gaurav said, on January 7, 2009 at 11:58 am

    So any chance of Raju and Telghi sharing cell or Raju going to claim Asylum.

  2. realitycheck said, on January 7, 2009 at 12:33 pm

    It would be remarkable if that happened. In his email he tried to minimize collateral damage by giving a clean chit to everyone else. The family is now vested in real estate (each member owning hundreds of acres besides the 7000 acre land bank of Maytas).

    Also not clear is the jurisdiction. The company may have to face a whole bunch of lawsuits in US courts – like the Upaid case besides criminal cases under US laws. I am also not sure about the recent Euro listing.

    Any investigation must not terminate with just jailing Raju for a couple of years. The government agencies must start working to get to the bottom of this. Atleast until someone shows up at the door with a suitcase and its contents have been duly examined and accepted.

  3. reason said, on January 7, 2009 at 2:14 pm

    First, the promoter family tried to shift a few thousand crores out of satyam to family run companies, which are possibly cash-starved. That could not go through. Now comes a confession by fax that the money, to begin with, was simply not there, and it was all inflated profits and cooked books.

    so the case is now really a case of accounting fraud, and not of stealing money. If I had a need for a few thousand crores and had to get it by any means, I would settle for being tried for accounting fraud if I can still get the money safe. Is that what is really happening?

    The business channels will yelp for a few days as if this is all very new to ‘corporate’ India. But this is all very routine for Indian business, the only thing different this time is it involves a US listed company. But the americans have their own Madoff running into 50 billion, so I guess that is sort of covered. Good timing.

    do not Indian companies have cross holdings? do they not strip assets from listed companies to unlisted entities held under the same holding company? cash transfers? is any of that new?

    I knew of a leading company that was getting ready to list one of its privately held business, and improved that unit’s margins by paying salaries to those workers from another already listed business. So workers worked on the yet-to-be listed company’s projects, but were on the payrolls of the listed company. And I am no dude with deep contacts, just an ordinary joe. I knew this because I knew of cases of individual employees who were in this boat and the reason was plain as day light.

    Still, lobbying for special government rules, policies, exploiting loop holes in policies are all different from out right cheating and stealing. I would not put infosys or wipro in the same league of these other companies.

  4. rc said, on January 7, 2009 at 2:52 pm

    reason – excellent points. This just outlines that the source of funds of Maytas must be investigated. Also yesterday some lenders holding pledged equity offloaded their shares. Is this just coincidence cuz the stock went from 180 to 30 today ?

    I just pointed out the distorting effect of this tax holiday on business and political activity. We of course have no evidence to suspect any of the other biggies of fraud.

  5. reason said, on January 7, 2009 at 3:21 pm

    when you say ‘source of funds of maytas must be investigated’, who do you think should do the investigation? I guess it is way past the time that we quit pretending like we have ‘institutions’. check out barbarindians’ recent posts on courts.

    what happened to dinesh dalmiya?

  6. Gaurav said, on January 7, 2009 at 3:50 pm

    Ok Tata Bye Bye

  7. Gaurav said, on January 7, 2009 at 3:53 pm

    Grr I meant Ok Tata Bye Bye

  8. rc said, on January 7, 2009 at 4:11 pm

    Isnt the Upaid case going to be heard later this Qtr ? He cant be camping outside the courthouse. I think he is in India talking to his lawyers to see if they can get anticipatory bail failing which he will surrender at an appropriate time in a dignified.

  9. rc said, on January 7, 2009 at 4:16 pm

    Yup, the courts cannot escape blame if we lose to Pakistan or to the Maoists. Today the Madras High Court ruled that a child of mixed caste can choose either of the parents caste. So now the free agent voter population has no chance of shrinking ! What happened to the much hyped 2-judge benches that was supposed to be set up to examine the 9th schedule amendments ?

    I also have a review in draft of the book “Reserved” by Rajeev Dhavan. More later.

  10. Trailblazer said, on January 7, 2009 at 5:43 pm

    A very sad day for Indian IT and India Inc. in general. Capitalism of the worst kind.

  11. reason said, on January 7, 2009 at 6:23 pm

    businessweek, random bulletin boards, they all place our man along with Madoff. What a way to go.

    Pakistan should be the happiest – the Indian media were threatening Pakistan with daily dose of how India is ‘angry’, ‘means business’, ‘compiling dossiers’ and loads of other crap. Now this will have to take over atleast until the next batch of commandos sail in.

  12. Barbarindian said, on January 8, 2009 at 1:27 am

    Narayana Murthy said it is a Governance problem. One hears that a lot these days. Governance of whom? By whom? No clear answers.

    It is such an aseptic term, governance. You will always have smart mice, the question is after they get accidentally caught – will there be credible remedial action? Telgi got 10 years jail term, he was already HIV +ve, so that doesn’t count.

  13. reason said, on January 8, 2009 at 5:51 am

    remedial action? you are kidding.

    it turns out pricewaterhouse coopers were the auditors for the other scam from andhra, GTB bank. and the remedial action helpfully imposed a ban on PWC from auditing only banks. See, we cant take all the fun out and make it tough on our friends to do business as usual. how do we run our democracy if we kill all of our entrepreneurial ‘spirit’?

    please do remind yourself that you have some leading members of the country’s ‘entertainment business’ partying with Dawood. What next, you will ask for stopping that fun too?

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