Reality Check India

Rs 2,000 Cr bail out being readied ?

Posted in Uncategorized by realitycheck on January 14, 2009

This is the logic :

  • the USA had an Enron, we have Satyam
  • the USA tax payer bailed-out Fannie-May, so let the Indian tax payer bail out Satyam

But the USA did not bail out Enron.

But India is not the USA.Our farmers commit suicide and we dont have roads for example.

The Central Government has decided to take direct action to remis looking at a salary bailout for the 53,000 Satyam Computer Services employees.

A Rs 2,000 crore package is under consideration to ensure that Satyam employees get their salary on time after it the new board said that they are looking for funds.

CNN-IBN has learnt that the government is looking at giving three instalments of Rs 500 crore to Satyam for the next three months and is planning another infusion of about Rs 400 crore.

Prime Minister Manmohan Singh met senior Cabinet ministers and officials at his residence to discuss the over Rs 7,000 Satyam scandal where the bailout package was finalised.

Source : IBN Live

Manmohan Singh and P. Chidambaram who are completely silent on the Rs 60,000 Crore spectrum scam can hardly be expected to represent the hapless tax payer.

Kiran Karnik says this is a loan and not a ‘bail-out’.

Of course, Sir. A bail out is nothing but a tax payer loan given to a company that has zero chance of getting a loan from anywhere else.

Reasons why the bailout is a bad idea

  • You have not completed the investigations and therefore have no idea about the true books of Satyam. Any bailout must be patient and wait for this to complete.
  • Raju has claimed in his letter that he has personal money of > 1600 Cr in Satyam. Your bailout will mean his money is safe
  • We are sick of hearing about the ‘brand’ (must be an Indian B-School thing). The Satyam brand is finished. No amount of taxpayer money can save it. The only thing that can save the brand is a clean chit from the court leading to the acquittal of Mr Raju
  • The employees can be saved by splitting up the company and selling it in parts. Satyam needs to be taken into bankruptcy. This blog has an idea about how this could be handled.
  • Take into account the legal troubles faced by Satyam in the UPAID case. Satyam might very well lose that case considering the admission of large scale forgery by Mr Raju himself. The claims are upward of USD 1 Bn. The Indian common-mans bail out money will be exposed to this huge risk.
  • The class action lawsuits in the US courts might also well win considering the deliberate defrauding of shareholders, as admitted by Mr Raju himself. The Indian tax payer will be exposed to this risk as well.

The number one reason why the bailout must not happen is

The precedent being set.

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Tax payers money for Satyam bailout

Posted in Uncategorized by realitycheck on January 12, 2009

We already said the IT tax holiday is the original sin and the driving force behind the SEZ scams big and small. So, what is left to say.

The tax payers must stay alert :

Speaking on the sidelines of the meeting, board member Parekh said Satyam’s working capital requirements needed immediate attention and that he expects the government to provide temporary liquidity to Satyam to overcome the crisis. The amount of liquidity required has not yet been determined, he added.

Source : Domain B

So, a company that has contributed little or no tax money to the nation now wants our tax money to tide over its crimes. How ironic ?

I do not doubt the integrity of the new directors. This is just a dangerous job they are undertaking.

More observations

  • There were many talking heads on TV tonight saying the “Satyam brand cannot be allowed to sink”. Dear Sirs, the brand is finito. You better give this company a new name.
  • Saving the employees is not the same as saving the company. You can split up the company and sell the parts by bidding. This is the correct capitalistic way. Let Infy and others bid for the pieces including the employees. You can structure the auction that way.
  • Poor tax payers are going to be exposed to the various cases in which Satyam is implicated and might very well lose. Do we want the Indian school teachers salary going to settle Satyam’s dues with UPaid  or the recent slew of class action lawsuits ?
  • CPI MP Mr D Raja suggested the government should simply confiscate and liquidate some land belonging to the Raju family / Maytas and use the proceeds to meet operating expenses (which are low in a software services company) I am not saying I endorse this, but it sounded appealing.

I must say the new directors are brave people. Good luck.

The government will be all too eager to screw the tax payer You see taxes (along with terrorism, inflation, and mosquitoes) are big ticket issues which mean zilch in Indian elections.

Swaminomics gets 100 fanboy points

Posted in Uncategorized by realitycheck on January 11, 2009

 Swaminathan Anklesaria Aiyer  on Times Now begged Infosys chief to assume the Kalki avatar to rescue the corporate world from moral depravity. That exchange was the funniest thing I have seen in a while. Murthy himself squirmed in his seat and evaded the question.

Now, Mr Aiyer has an article in the Times of India titled “Murthy should rescue Satyam

But Murthy retired as CEO of Infosys many years ago, and is now its mentor and ambassador at large. That is an important and valuable role. But rescuing Satyam would be a bigger and more fruitful role.

This is absurd. There is no difference between the work undertaken by either Satyam or Infosys. They fight a billing rate war for each major contract. You ask Murthy to sit on board Satyam, he will simply fax a list of clients, the headcount requirements for each, the billing rates to Bangalore and improve his own bench utilization. Even a child knows that you cannot have the same person on the board of two competitors.  I guess Mr Aiyer is a fan high on Murthy weed.

Is this a case of the media eating its own poop and then eating its own poop-food-poop ad-infinitum ? Absolutely.

I understand if people run fan clubs and have blind faith in their gods.  Mr Aiyer gets 95 points for his devotion.  He would have got 100 points if he wanted Murthy to take over the country like other news anchors.

Talking about fans, I must confess to following  recently with some interest Professor Arindam Chaudhury. Yes the Management Guru, The Economist and The Philosopher.  Why ? It is mostly because I dig his opinions in The Sunday Indian (Indias Greatest News Magazine is its tagline. How very cool). He is someone who has not made peace with the corrupt system.  Yet, he is an entrepreneur. Beat that.

So there, I too am a fan of someone.  Still, I wont go around worshipping him or asking him to take over Satyam (May not even be a bad idea).

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To conclude, here is something Mr Aiyer and Mr Murthy dont want you to talk about.

Is the never ending tax holiday on IT services making it easy to cook books ?

Satyam could inflate profits at will because it didn’t have to pay IT on its export income. Other exporters may try similar models of creative accounting due to similar patterns of tax exemption. It’s also likely to happen in other industries with tax breaks.

It’s more common to deflate profits and siphon cash off. In businesses where the cash component is inherently large, PEs could hit the floor. For example, liquor, aviation, FMCG, retail, are all cash-businesses with a large proportion of revenues accruing in cash transactions. That gives managements the incentive to develop cosy relationships with the IT and excise departments and conceal cash revenues. Inflating profits is less likely in such businesses where taxes are payable on profits.

Source : Devangshu Datta in Business Standard

What we need on the board are people who are not in the tax-free-mountain-of-cash game.

Just scrap the SEZ scheme already !

Posted in Uncategorized by realitycheck on January 10, 2009

I have said many times in the past that the tax holidays for IT services companies must end (see links at end of post). Must have ended 10 years ago. They are sitting on mountains of cash with nowhere to invest. Their core business of outsourcing is dependent on billing human resources. Apart from training and facilities management (buildings, gensets, travel / visa ) – there is really nowhere they can put the cash.  If you think our IT companies are much more and need cash investments, this site might be more suitable for you.

This article says that the tax holiday might have made it much easier for Satyam to cook its books.

In some ways, the tax-free status of IT companies may have allowed the Satyam promoter to cook up numbers in the company balance sheet. Had the  company been paying tax at the regular rate, inflating revenues and profits would have been that much more difficult, as tax payments mean real cash outgo. Indeed, when corporate accounts come under a cloud, investors should look at tax payments and dividends, both of which entail cash outflow from the company, as a source of comfort about the sanctity of accounts. The IT sector was given a 10-year tax holiday under section 10A & 10B. The benefit was to end in March 2009, but the government has extended it by one year.

Source : ET

Cash on books of companies requiring little investment invites corruption. 

The SEZ scheme must be scrapped immediately.  Whether it is Murthy, Nilekani, Premji, Raju or thousands of others. They must made to pay fair tax . Kicking and screaming.

Alternately, these stalwarts need to come out and clearly quantify how their growth (not profit) will be impacted if they paid normal corporate income tax.  I am sure we can use the cash for the welfare of the poor and oppressed classes. No?

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Also read previous posts on the grand SEZ scam :Nilekani Imagining India,  SEZs need to go in Goa,  SEZ Chat, PIO University in an SEZ ? , IT SEZ – Everyone wants a holiday, Minimum Alternate Tax issue, Everything is wrong with us (maximum size cap on SEZ), Panel extends IT holiday to 2019 , and more

Shell institutions about to be exposed

Posted in Uncategorized by realitycheck on January 9, 2009

So, the Satyam press conference was a sham. Ignorance was the theme. It is hard to believe the interim CEO Mynampati is innocent. The police are about to perform the grand Friday trick. This is how it works – if they want to arrest someone the political class does not like – they will arrest them on a Friday. So the person arrested will have to spend two days in jail before a magistrate can hear the bail plea on Monday. If they want to protect someone, they will wait till Friday and then claim that nothing can happen till Monday. This gives them ample room to get themselves admitted to a luxury private hospital (KS Raju is still in hospital after three weeks) or to make a quick exit.

But that is not surprising, we already know the Police institution is completely servile to the political class (mostly wealthy landlords). We already know the court system is approaching irrelevance (A 5-judge bench pronounced that they would not subject political action to strict scrutiny. They did not clarify if baby-scrutiny is on the table). Anyone notice lately the courts do not make the news at all. We Indians have added another elephant to the herd already in the room.

Despite the cynicism, I am certain the investigators will examine the possibility that the money existed and was siphoned off.

Ok, got to go. I need to hunt for petrol for my bike to go to work – all petrol bunks are closed due to nationwide oil truckers strike but I know where to find an “entrepreneur” who sells for 60 Rs/litre.

Satyam past must be investigated

Posted in Uncategorized by realitycheck on January 8, 2009

For years we had a Solidaire black and white TV. The one with shutters and a lock. Occasionally, it would conk off and a bright straight line would appear on the tube. Once that happened, we had a trick. We would close the shutter (I know) and give it a little whack on the side then a big whack on top. For a long time, this would do the trick the picture would jump back to life. Everyone in the family knew it. It served us well, until one day..

I could not help but think of our family trick while reading about Satyams asset building exercise. Has this trick been used in the past ?


This is what I understand. For a deeper analysis Check out this analysis, which is the best I have read or heard so far.

Step 1 : You need to find a company willing to make a book entry receipt of a huge amount without actually receiving anything or far lesser. This company would have to then take on the task of cooking the books until the payment arrives. This is the delayed payments that Raju mentions in his letter.

Step 2 : Satyam would then show this investment as an asset while transferring the burden of continuing the fraud to the friendly company. As time goes by in a bull market – they can slowly make the books of the friendly company look better, for example by offering equity. Maytas plays in India and is well connected with politicians, so it is much easier for them to carry the burder of the scam. Satyam is watched by SEC and the pesky foreigners.

We ought to investigate all past purchases of Satyam like the famed 2000 Indiaworld deal ( Rs 500 Cr buy for a company making Rs 25 Lk profit and a bunch of web pages ). I know the founder Mr Jain is highly respected in India. But we cant fall prey to hero worship of entrepreneurs which got us into trouble in the first place. I do hope that nothing is found there but we must look. Also look at the SIFY sale and the way Satyam let go of an opportunity in a rights issue to the enormous benefit of a family member.

There is another trick that has worked in the past. Mr Raju started a textile company and suddenly declared it dead leaving a lot of people in the lurch. This is the quick exit trick. The Raju family is reported to be among the top 10 landlords in India today. Via Maytas they hold 7000 Acres and each member personally owns hundreds of acres in Southern and Western India. This does not come cheap. If Satyam goes under and the cash is missing, can we assume that the cash is in the land bank ?

I agree with what Mr Narayan Murthy said last night on various TV channels.

What is important is to see how the regulatory agencies handle this ?

If Mr Raju gets away with a fine of Rs 25 Crore and/or a jail term while keeping the land bank, then the world would derive its own conclusions.

Again quoting from the excellent analysis by Digitizing Thoughts. Raju might have confessed so his personal money in Satyam is secure. He would be out on bail in no time while Jethmalani, Jaitely and Singhvi can take over for a decade or so.

2. He has already introduced Rs.10 billion of own money into the Company. With increased shareholder activism, it had almost become certain that he will get out of the Company sooner than later. In case he had to go out, how to get back the Rs.10 billion of personal money left with the Company? Make a confession and repeat multiple times in the open letter that there is an unaccounted liability of Rs.10 billion so that that amount is secured for him, irrespective any legal tangles he gets into by the confession. This again, is a master stroke from Mr. Raju, in my view. Because, he is fully aware of the speed of legal process in India and so while the legal battles are fought with intelligent lawyers for 10 or 15 years, he can continue to enjoy the money and comforts.

Source : Digitizing Thoughts Blog

As Reason, a long time commenter said – maybe it is time we stopped pretending like we have institutions left in India.

This past year alone various institutions (Supreme Court, TRAI, COAI, CVC, etc) have been asked to prove their mettle. All have fallen woefully short. The CVC is being exposed in the way it deals with the magnificent spectrum scam. All have sulked into submission to the political class after making initial noises. The worst being the Supreme Court which seems to have voluntarily waived its right of US-style-strict scrutiny. Neither did it say what its own standards of scrutiny are. Where do we go from here ? No one knows. Now it is the turn of SEBI, ICAI, to step up and show us if they have any clothes on.

The complex interconnection of politics + landlords + entrepreneurs dominate the political landscape in India today. (Political clout might save the day ) Cash changes hands freely while the media is paid off in cash or in secular money.

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I say we hold off on asking our soldiers to make the supreme sacrifice until we fix the house. Do you agree ? Dont we owe them that much ?

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.

RCOM rolls out GSM Pan India

Posted in Uncategorized by realitycheck on December 31, 2008

Anil Dhirubhai Ambani Group ( R-ADAG) launched the GSM mobile telephone services recently. The mobile service will span across 11,000 towns and over 340,000 villages with a capital infusion of Rs10,000 crore.

This was a strategic move to prepare for the third generation services (3G). Reliance Communication s CDMA network currently spans over 20,000 towns and with its GSM mobile service it will double its coverage over the next few months – according to an official statement.  (CXOTODAY)

Read over 200 expert comments here

We want clinching evidence

Posted in Uncategorized by realitycheck on December 27, 2008

No, it is not Pakistan. It is the Indian media.

Look what Prabhu Chawla has to say in response to a question.

What is your view on Rs 100,000 crore telecom scam in allocation of 2G spectrum? Why is the media not taking up this issue of monumental loss to the nation and benefits to companies owned by minister and the ruling party?

Prabhu Chawla Answers…

Media has written enough on this subject and we carried a big story last month. But the media has to be given clinching evidence in this case.

Ask Prabhu on India Today website

We are not asking the media to do a sting. We expect it to persistently raise this issue to the PMO and FM, to the CVC, TRAI, and other institutions. If such questions expose the toothlessness of these institutions, then so be it.

Dollar billionaires created holding just a piece of paper. No one, including you Mr Prabhu can dispute it. National assets sold for their real value to foreign players via real estate companies acting as intermediaries. No one, including you disputes it. We do not know if there is a fire, but we sure can see the thick smoke billowing.

Yet, you want evidence to even ask these questions. You have not written enough.

Can you blame our enemies (the cross border variety) from adopting the same ‘give me evidence’ tactics ?

Maharashtras free agent population to shrink

Posted in Uncategorized by realitycheck on December 26, 2008

I sat in front of the computer. WordPress jumped to life. The topic on my mind was Pakistan. This was going to be an effortless post. Some server would host a few extra bytes of nonsense in a few minutes. Just when I started to type the first characters, I heard a commotion outside in the street.I went up to the window and looked out into the real world.

Nagpur, Dec 23 (IANS) Cutting across party lines, Maratha legislators in Maharashtra Tuesday made common cause to demand inclusion of their community in the ‘other backward classes’ (OBC) category and extension of reservation facility in education and jobs.

Several Maratha members of both houses of the state legislature, attending its winter session in this second capital of the state, held demonstrations at the Vidhan Bhavan premises in support of their demand.

Former chief minister Vilasrao Deshmikh, also a Maratha, told reporters that his government had assured the community of sympathetic consideration of the demand.

The demonstrations were led by Pandurang Phundkar of the Bharatiya Janata Party and Bhai Jagtap of the Congress.

Source : Mangalorean (emp mine)

I lost all interest in writing about big ticket issues.

I have been following this issue for a while now. It appears that the issue has now matured. There is no going back. 25% of Maharastrians are going to leave free-agent voter-hood.

You cant fault the Marathas either for wanting to be included in the list.If X can have it just for being X, why cant Y have it for being Y ? We cant apply reason and measurement selectively.We passed that fork in the road long back.