Issue 7—January 14,2009
Whoever said that irresponsibility is a function of developing countries could not have been more wrong. Financial scams in the most regulated economies have been most regular. America for instance, the world’s most powerful country, has seen the most powerful corporate frauds. Enron and what have you.
Even the Satyam fraud came to light courtesy the global liquidity crunch coming in wake of the sub prime crisis caused by the irresponsible and even fraudulent behaviour of the top financial institutions in the US. Not to mention that Satyam was a listed company in the NYSE and that America must take equal responsibility.
So who then is really to blame for the Satyam fiasco? Is it Ramalinga Raju—the maverick Chairman or PWC—one of the world’s top four consulting and auditing firms or then the Indian legal and corporate system or as said earlier the sub prime crisis originating in the US. Perhaps it was actually outsourcing that became a source of the problem.
IT outsourcing is exempt from income tax. Had it not been, inflating revenues and profits would have attracted a higher tax outflow, something that would have deterred Raju and company to have done what they did given the magnitude of the inflated figures. The tax outgo may have seen the scheme to be risky and unfeasible. Besides, financial fraud thrives on regular and continuous supply of finance. Should the funds stop, so would the racket, as happened with Satyam. Like most IT outsourcing companies, most of Satyam’s revenues came from the US and that too financial institutions. Once the sub prime crisis broke and the recession deepened it became increasingly difficult to maintain the camouflage.
Outsourcing, then, has, to a large extent, put India on the global map and in fact saved it from an irrecoverable economic crisis. Naturally the government would like to protect its IT prowess. One could well assume that this may have resulted in lesser policing of these companies. If so, in hindsight this has proved counter productive. The government now has to work double time trying to save the company, its three lakh shareholders, over 50000 employees and above all India’s corporate image.
So far it seems serious and if it succeeds in ensuring a solution in quick time it could actually increase the investor confidence across the globe, more than ever before priding itself in efficient governance to overshadow corporate governance. It would also increase their appeal just before the upcoming national elections. And that’s the truth (Satyam).