I was discouraged in not writing about the Satyam Saga in the last few days, given my rather critical views and the impact it may create. But I can not hold on further - so here goes my views.
Satyam is a IT leader which has grown to this level through the sheer aggressive drive of its promoters, their commitment and the hard work of the many professionals whose dedicated effort also made this possible. Somewhere along the line, the same characteristics which made this company reach this level of operation, predominantly risk appetite, has gone awry. Instead of owning up the mistakes, and sharing the risk perception with the major share holders, the management had tried to save the situation and resorted to manipulative ways which drove them to cook up accounts.
The first major mistake which the promoters owners did was to continue to treat the company as their personal fiefdom in spite of becoming minority share holders. Employees and the many institutions which invested had implicit faith in the promoters who had brought fame and good returns to them in the past and were not cunning enough to think otherwise.
What the long term investors did not realise was that the promoters appetite for risk had moved on to more riskier avenues in which they had a belief for the future. May be it is still true; but legally and morally they were bound to take the larger stake holders in to confidence, especially the employees.
The fraud which has been done and is currently hurting the employees and other stake holders could not have been done by a select few and that too in a short time. Many of the 42 vertical heads, their vertical's financial controllers or accountants should have been aware of these. Similarly the HR group should be aware of the excess employee list or the fictional list and the money being drained out. Cash with drawal or miscellaneous accounting expenses (euphemism for political cash expenses) must also have been done with the knowledge of all senior officers of the verticals.
Such practises when not collated and viewed as stand alone events, tend to distort the overall picture. (Each one is doing only a minor bit and that too occasionally ; but put together it all adds up to a very large amount). Employees are caught between the devil and deep sea here. If these expenses do not take place, they may tend to believe that their prospects of revenue protection or statutory clearances do not come in as desired. Even when they know that the promoter is taking the money for his personal operations, they typically turn a blind eye as they believe they deserve it.
This perception should change. Executives with delegation of powers in organisation should oppose such moves, even at their risk of being in the bad books of management. They may loose their job or hurt their career growth; but by tolerating they are becoming criminally liable for false fully accounting and misleading the public.
Another major issue is that of inflating the receivables. This is a practice that typically bring down many an organisation. Any responsible officer can not and should not inflate the receivables quarter after quarter, year after year and continue to report inflated profits. Even when they book the orders at competitive prices, they would have known that the profits are not realisable. It is therefore clear that many in the organisations would have known for some time now that the game is over, but because of their own selfish interests and foolish approach, they continued to believe that they will some how overcome the follies for which they have also been responsible.
This is never done and such an approach can only come to this disastrous end as is seen here. There are many lessons to budding executives here in the Satyam saga and I wish they pick it up for their own sake and the interest of the country at large.
Showing posts with label India Inc. Show all posts
Showing posts with label India Inc. Show all posts
TATA Nano
Some moments in history happen and others are planned & created, like this one by the house of TATAs. While the leader RATANji hogs the limelight as he truly deserves, this moment is the culmination of the efforts of the numerous dedicated engineers and workers, both with in the house of TATAs and those who over the years have reposed faith and extended unflinching support to the effort.
By any standards, an investment bet of Rs.1700 crores on an innovative product is no small bet. It again goes to the credit of the TATAs indomitable spirit, who believe in their convictions and to their social commitment of envisioning a world where an ordinary Indian need not drive in two wheeler with his two children! It was interesting to read about a few of the the very difficult choices they had to make in the process of finally deciding on the various components of the nano, which they did, to reach this stage of launching the product and honoring their promise. With such display of unflinching commitment of the team, the stake holders in this mega enterprise have reason to be proud of their association and ownership at this moment.
The launch of nano signifies amongst others, the coming of age of our design capability in the domain of the so called western world. That this has happened in India signifies that there is more to come. It also means that others can aspire to emulate and follow the foot steps of Narayan Murthy, Ratan Tata and the like. The government should recognize the revolutionary nature of this launch and support the product by way of rationalizing the tax structure and providing incentives for early recovery of the investments committed by the TATA house. That this is truly a people's care and caters to the basic modern day needs of the common man has its own political significance and the day is not too far when the politicians would catch it for credit irrespecive of their idelogies.
TATAs are special and we as Indians are truly proud of this Indian Multinational, who also make cars!!
By any standards, an investment bet of Rs.1700 crores on an innovative product is no small bet. It again goes to the credit of the TATAs indomitable spirit, who believe in their convictions and to their social commitment of envisioning a world where an ordinary Indian need not drive in two wheeler with his two children! It was interesting to read about a few of the the very difficult choices they had to make in the process of finally deciding on the various components of the nano, which they did, to reach this stage of launching the product and honoring their promise. With such display of unflinching commitment of the team, the stake holders in this mega enterprise have reason to be proud of their association and ownership at this moment.
The launch of nano signifies amongst others, the coming of age of our design capability in the domain of the so called western world. That this has happened in India signifies that there is more to come. It also means that others can aspire to emulate and follow the foot steps of Narayan Murthy, Ratan Tata and the like. The government should recognize the revolutionary nature of this launch and support the product by way of rationalizing the tax structure and providing incentives for early recovery of the investments committed by the TATA house. That this is truly a people's care and caters to the basic modern day needs of the common man has its own political significance and the day is not too far when the politicians would catch it for credit irrespecive of their idelogies.
TATAs are special and we as Indians are truly proud of this Indian Multinational, who also make cars!!
Determination of Price for IPO by auction
Determination of IPO price by auction does increase the probability of pricing the issue much closer to the open market level as compared to any other form of discovery of price. By definition, the auction process is much closer to the open market but with out circuit breaker given the enabling controlled environment, effectively supervised by the Regulator for compliance.
Hence a solution could be, to put in place a system where IPO prices can be determined through auction, at the option of issuer, but with a lower limit on the price of the scrip, specified by the issuer, below which he may with draw the issue. With such an approach, the investor, especially the retail investor and HNI investors get a better role to play in the determination of price. This system will also usher in a mind set, where long term (read 2 to 3 years) outlook is essential to capture the value of the scrip.
In a developing economy like ours where the stock market is discovering new growth stories every month, we need to move to an auction platform quickly so that the issuer is provided an alternate option and is not necessarily compelled to accept the price suggested by the "Book Builder".
Determination of Price for IPO by auction
Determination of IPO price by auction does increase the probability of pricing the issue much closer to the open market level as compared to any other form of discovery of price. By definition, the auction process is much closer to the open market but with out circuit breaker given the enabling controlled environment, effectively supervised by the Regulator for compliance.
Hence a solution could be, to put in place a system where IPO prices can be determined through auction, at the option of issuer, but with a lower limit on the price of the scrip, specified by the issuer, below which he may with draw the issue. With such an approach, the investor, especially the retail investor and HNI investors get a better role to play in the determination of price. This system will also usher in a mind set, where long term (read 2 to 3 years) outlook is essential to capture the value of the scrip.
In a developing economy like ours where the stock market is discovering new growth stories every month, we need to move to an auction platform quickly so that the issuer is provided an alternate option and is not necessarily compelled to accept the price suggested by the "Book Builder".
Indian Governments need to be more proactive
Choke Eases Even More
RBI has done its bit to unshackle the Indian Entrepreneur and industrialists from the chains of bondage to the Indian currency. The Investors are, by the day being encouraged to, explore new markets, compete globally to maximise returns on their capital.
It is now the turn of the Government to step in an unobtrusive way to support the initiative. In this era of globalisation, we need to ensure energy security, and committed linkages to commodities that help us meet our growing needs. This is best done through selective investments, which also translate to export of our capital globally. All these can be front ended by the nibble footed Indian investor, but he surely needs the unfailing commitment of the government.
We need politicians who will understand the dynamics of the Indian multinationals' support requirements and guide the policies. They should intervene to nudge friendly governments to grant a license or exclusivity. They should also provide the bureaucratic support to secure favourable terms for our capital such as Sovereign government guarantees, negotiate hard during bilateral exchanges with the Indian investors capital in mind.
Bulk of our increasing foreign exchange reserves are due to the earnings of Indian diaspora who are toiling away to bring in the riches to the country. It would befit all their efforts if the governments and Indian Entrepreneurs use this capital to further enhance the Indian growth story.
RBI has done its bit to unshackle the Indian Entrepreneur and industrialists from the chains of bondage to the Indian currency. The Investors are, by the day being encouraged to, explore new markets, compete globally to maximise returns on their capital.
It is now the turn of the Government to step in an unobtrusive way to support the initiative. In this era of globalisation, we need to ensure energy security, and committed linkages to commodities that help us meet our growing needs. This is best done through selective investments, which also translate to export of our capital globally. All these can be front ended by the nibble footed Indian investor, but he surely needs the unfailing commitment of the government.
We need politicians who will understand the dynamics of the Indian multinationals' support requirements and guide the policies. They should intervene to nudge friendly governments to grant a license or exclusivity. They should also provide the bureaucratic support to secure favourable terms for our capital such as Sovereign government guarantees, negotiate hard during bilateral exchanges with the Indian investors capital in mind.
Bulk of our increasing foreign exchange reserves are due to the earnings of Indian diaspora who are toiling away to bring in the riches to the country. It would befit all their efforts if the governments and Indian Entrepreneurs use this capital to further enhance the Indian growth story.
SEZ Policy
SEZ policy which was supposed to be a single stop solution for all the ills of the exporters has hit a road block much to the chagrin of some in the government. The issue is the land which in most of cases is snatched from small farmers and handed over to the industrialists & corporates. Our rural folk have skill sets which support agriculture and it is naive to expect that reclassification of Land use which effectively rules out the repossession of the land by the current owners for generations will be smooth. Further the literacy level and the language barriers prohibit these farmers to move on to another location in our own country with out major setback. Policy makers and corporates should be humane enough to understand these issues and take appropriate action.
For instance in the case of Reliance, one of the suggestions is to take these farmers on contract basis and provide them with leased land and need based funds to engage in farming. Such farm output could be sold through their own proposed retail network. Such forward thinking and inclusive development models should be deployed by the corporate leaders like Reliance.
For instance in the case of Reliance, one of the suggestions is to take these farmers on contract basis and provide them with leased land and need based funds to engage in farming. Such farm output could be sold through their own proposed retail network. Such forward thinking and inclusive development models should be deployed by the corporate leaders like Reliance.
Economic Renaissance in the Developed World
Economic Renaissance is sustainable and the Developed world is looking up to India to bolster their economy through the improved performance of our economy and increased consumption. Just to illustrate - Today our earnings in foreign exchange is across a much wider spectrum as compared to a decade ago. While there used to be only remittances from sweat labour from across the middle east and supporting funds from non resident residents to the near and dear ones, today Indian born and international entrepreneurs are returning to their mother land with ideas, systems and seed capital. This is setting in a new chain of growth which will take our economy to new levels, leave alone sustain. Their presence and their interactions with the world clearly demonstrate the sustainability of the growth story, for these are definitely not "Fair weather Friends".
True any mismanagement of the macro economy can undo part of the growth story. But the current government has not given any indication of such actions. On the contrary, the government owned Goliath the Indian Railways has returned surplus and is set to surpass its own stellar performance last year. The investment in the aviation sector is returning surplus as well.
The capacity addition being seen in the Capital goods industry, the booming service sector and the additional investment being planned for in the Retail, Infrastructure through Public Private participation, indicate that the Indian corporate and international private fund managers have a diametrically opposite perception from that of IMF. They believe in the Indian growth story and are eager to participate at the first opportunity, rather than wait and be left behind.
Retailing in India - New Revolution
With the who is who of Indian corporate announcing ambitious schemes for the retail space, it is indeed a question how the neighbourhood small retailer will manage to retain his own. Grandma's wisdom suggests that the small retailer will continue to staty. Is that the case?
Let us look at similarities in few other major retail spaces - the eateries, the road side mechanics for 2 wheelers.
I remember the early 80s when we had very little choice in class restaurants in Chennai. As a matter of fact if you move out of one part of town, you are literally on your own or you will have to be dependant on the small road side restaurant, with its basic facilities. But today, we have choices and this has not reduced the number of small eateries; on the contrary the small eateries have also increased in numbers.
Similarly we were wholly dependant on the road side mechanics but now we have a choice for the place of service; but that has not eliminated the road side mechanics, but has only added in numbers.
The main reason for easy accommodation of the variety of service providers is the latent demand which has not been met, be it in terms of quality or quantity or infrastructure the service provider offers. Similarly in the retail space there are people who are looking for shopping in large Retail chain stores, which they can not do so now. When such an opportunity arises they will definitely shift. But that would not mean that the entire lot who are shopping with the neighbourhood retailer will shift. There will be pressure on the local small timer to improve and attract new customers, retain existing ones. So will be the case for the Super Bazzars;
The key differentiator between the big and small will be Technology. This will play an edge as it can be leveraged to assure consistent quality in all aspects. Indian consumer is very demanding as many marketing surveys has established and the big ones are aware of it. So if they provide quality products and service they will have their own space and will manage to wean away a larger segment. But they can never dream of eliminating the small retailer.
Indians are masters in retailing and will put the large international logistics firms and whole sellers to shame by their rudimentary solutions, as in the case of the panwallahs. These road side delivery centers are are so excellently linked through out India by a supply chain mechanism, which even the giants such as HLL have not been able to replicate after years of attempts. The pan (beatle leaf)is fresh and so is the gulkand! And please note this chain works with out proper refrigerated storage and refrigerated handling vehicles.
Disgorgement Order of SEBI
Whether it is the "Disgorgement Order" or the move to accept and recognise the offer of "Super Self Regulatory Organisations" of a section of the market participants, SEBI's initiative have to be complemented and encouraged. The man at the helm Sri M.Damodaran deserves all the praise he is rightfully receiving..
His recent remarks that "Absence of Precedence would not be a deterrent for the Regulator" as quoted in your column deserves to be singled out and appreciated. India is unique and is today a thriving financial market where the psychology and the behavioural aspects of the market participants are strikingly different than those of the other developed economies. The lax in non compliance to the laws of the land (read - feeling we can manage it all) be it a simple a traffic rule or the tax compliance, emboldens the individual to use his capabilities to influence.
He comes with this mind set to the market, which the Regulator has to take note of. Regulators actions will therefore need to be punitive and swift to change this mind set. The over reach of the regulator in commenting on the media is another case where he is moving on to ensure investors protection. Regulators actions are crucial as his dithering can shake up investors confidence and scare away the fair weather friends.
Free the Pipe and avoid Monopoly
We have a lot to learn from the Electricity Distribution model when we are on the anvil of launching a pan India network of Pipes for gas with the last mile connectivity to deliver to individual homes. Four major points emerge from the success as well as the failure of the National Power network. These are:
- National Grid is best owned by a single operator who can not have distribution rights at the local level. This is to ensure that the pipes are not monopolised, which link gas wells and LNG terminals at port to City Bulk storage points, and bulk consumers. GAIL has to be given the mandate and the Gas Transmission tariff should be regulated. As in the case of the Power sector where Private participants invest in the formation of major national links, the Joint venture route with GAIL ownership up to 49 % shall be insisted up on.
- City Distribution shall be sub divided to two segments - the main trunks which run across the city and the sub transmission which connect the trunks to individual consumers. We must avoid the model which we have in electricity, where when we are in the fourth year of reforms and are unable to free the wires for open access. It is therefore necessary to allocate city distribution to a minimum of three players for each city through a competitive bidding route as done in the telecom sector. The selected operator shall be mandated to build the minimum quantum of the Main trunk routes and the sub transmission network as required for servicing his consumers. The main trunks should be free to be used by the other Gas Providers by paying the transmission charge which can be regulated. While individual consumers cannot have the choice at this stage, this kind of structure will finally enable the pipe assets to be spun of to a separate company which may not have interest in distribution.
- Metering has to be state of the art, along with the connected remote control mechanisms. This would facilitate dynamic pricing to reflect the global price trends and the foreign exchange rates. We need to encourage Pre Paid metering which would facilitate the consumers to move from the Cylinder era to the Piped era, with out complaining of high energy bills.
- Finally Energy in India is subsidised and moving over to market related pricing quickly can enlarge the social disparities. It is therefore prudent to plan the network reckoning some element of subsidy which can be clearly traced to the beneficiary instead of "un metered Freebies" now being practised in the electricity sector.
India Inc on Job Training & Stipend
I read an interesting article in Business Line today on the topic "India Inc Offers Job Training, Stipend".
Two significant facts hit me. One the minuscule number of students who will be eligible for this offer and the other the absence of scholarships for the Science and accounts faculties. The total population who will be eligible for this offer is in the range of more than 3 crores and to see that only 5000 will become eligible, even though it is a starter is real dampener.
One would expect the CEO's of India Inc to exhibit a better sense of the numbers involved and scale up the offers to make a significant and quick impact.
Finding and nurturing innovative talent in the Science and humanities faculties are also essential. India Inc must wake up to the fact that with the increased level of automation being achieved through information technology, trained and groomed science graduates and humanities graduates will also significantly supplement the efforts.
After all it is the current scenario when we are experiencing severe shortages of trained manpower and the likely scenario of this not improving in the near future, drive India Inc for this effort. It must be wholesome and complete effort to make this programme really successful.
I wish the programme is revisited and improved.where you will of the immediate future
Two significant facts hit me. One the minuscule number of students who will be eligible for this offer and the other the absence of scholarships for the Science and accounts faculties. The total population who will be eligible for this offer is in the range of more than 3 crores and to see that only 5000 will become eligible, even though it is a starter is real dampener.
One would expect the CEO's of India Inc to exhibit a better sense of the numbers involved and scale up the offers to make a significant and quick impact.
Finding and nurturing innovative talent in the Science and humanities faculties are also essential. India Inc must wake up to the fact that with the increased level of automation being achieved through information technology, trained and groomed science graduates and humanities graduates will also significantly supplement the efforts.
After all it is the current scenario when we are experiencing severe shortages of trained manpower and the likely scenario of this not improving in the near future, drive India Inc for this effort. It must be wholesome and complete effort to make this programme really successful.
I wish the programme is revisited and improved.where you will of the immediate future
Issues at Sugar Industry
Your leader on the need to address the issues that plague the country's Sugar Industry is timely.
Given the fact that we are reaching new highs in terms of total sugar produced in the country with surpluses being seen at the same time globally, we need innovative policies and location specific support so that the stake holders are protected when the down side becomes steep. Today the sugar industries have multiple revenue streams through export of Power and Ethanol. In some locations some of the factories are even buying Bagasse for burning and producing power.
Under such a scenario, one has to address the Sugar co-operatives, mills and companies to make reasonable profit out of their by products, be it Ethanol or Power produced from their co generation plants. They should be encouraged to sell their power at the highest cost toady ( Rs.7.45 per KWH). This is feasible only if the restrictive provisions on the Power Trader are removed and the trader is incentivised with appropriate margins to pool these stand alone resources, collate and sell.
Similarly the blending of ethanol is being talked about for a while. It is the appropriate time to encourage and provide additional incentives to the industry through special prices for ethanol at this time.
A holistic approach from a macro perspective needs to be taken to support this sector at this stage.
Flip Flop in Export and Import
The blame for the debacle in the sugar Industry is being placed at the governments steps for its flip flop attitude in first banning Exports and then rushing to provide subsidy for exports all in a manner of 12 to 16 months. Similarly on the Cement front where the government invited with open mind (and quite correctly too) foreign multinationals to invest in Indian cement plants and create additional capacity, is now crying wolf saying that they are profiteering. Of course they have to profit and not for a social cause. It brought in a additional levy and now it is thinking of lifting it.
Iron ore, Wheat are other stories and so is the pulses story as your correspondent Mr. Chandrashekar eloquently highlights the failings of the government machinery. We are thinking of banning forward trade while RBI encourages hedging in international exchanges!
All this points to very serious systemic maladies which need surgical intervention, followed by long term rehabilitation (read Long term sustained policies). The maladies are the near absence of trained professionals involved in the decision making when world over, people who take similar decisions are trained specifically for the job and have equipped themselves with a strong data base and modelling systems powered by technology. It is time we transparently appointed experts or hired through medium term contracts who can bring in far reaching impact on the decision making. There is need to establish a better system of collection of agricultural production and other consumption, data, and make it available on a technology platform for manipulation to prepare what if scenarios.
The government and the powers that be should be advised not to look for quick fix solution for issues concerning globalised commodities in this post WTO era. Local issues, such as an State election can bring in political pressure on decision making but the decision makers should desist from yielding to such pressures and refrain from tinkering with policy on the Export - Import front.
Otherwise they will be inflicting far more damage than good to the vote bank.
Iron ore, Wheat are other stories and so is the pulses story as your correspondent Mr. Chandrashekar eloquently highlights the failings of the government machinery. We are thinking of banning forward trade while RBI encourages hedging in international exchanges!
All this points to very serious systemic maladies which need surgical intervention, followed by long term rehabilitation (read Long term sustained policies). The maladies are the near absence of trained professionals involved in the decision making when world over, people who take similar decisions are trained specifically for the job and have equipped themselves with a strong data base and modelling systems powered by technology. It is time we transparently appointed experts or hired through medium term contracts who can bring in far reaching impact on the decision making. There is need to establish a better system of collection of agricultural production and other consumption, data, and make it available on a technology platform for manipulation to prepare what if scenarios.
The government and the powers that be should be advised not to look for quick fix solution for issues concerning globalised commodities in this post WTO era. Local issues, such as an State election can bring in political pressure on decision making but the decision makers should desist from yielding to such pressures and refrain from tinkering with policy on the Export - Import front.
Otherwise they will be inflicting far more damage than good to the vote bank.
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