01-09-2009, 11:15 PM
<b>The Satyam scandal: Now what</b>?<!--QuoteBegin-->QUOTE<!--QuoteEBegin-->The Satyam incident corrodes the individual's faith in the system. The casual observer is left wondering what other skeletons are going to tumble out of which other companies' closets. Obviously, this is going to have an effect on India Inc as a whole, and this could not have come at a worse time, given the global jitters.
<b>It is surely going to be more difficult for other Indian IT service players to win business now, given that they will be tarred by the same brush. Competitors from other low-cost locations such as China, the Philippines, Vietnam, and Eastern Europe will certainly take advantage of the situation. </b>
This is something the IT services industry, facing as it is the threat of a serious reduction in business as fallout from the general market malaise, did not need.
<b>Undoubtedly, this is going to hurt the prospects of foreign money flowing into India in the near future as well; and it was anyway looking a little shaky in the aftermath of the Mumbai invasion and the prospect of war with Pakistan. This will help extend the liquidity crunch and will depress the stock market.
After all, India, running a substantial current account deficit, has been using inflows to help fuel its rapid growth. At a time when the incoming US President is warning of trillion-dollar deficits, India is quite likely to suffer from a cash crunch.
The overall growth prospects of the country, therefore, may also be affected. Thus, it is a disaster on any number of fronts. </b>
People have been quick to compare the Satyam incident is to the Enron scandal and to the Bernie Madoff Ponzi scheme. It might be equally apt to compare it to the sub-prime crisis, because the magnitude of the scandal, and its possible effects, are so large.
And it raises some serious questions: what causes this kind of behaviour? What can be done to detect and prevent it?
Why do people get into fraudulent behaviour? Perhaps, it just became a habit. There was a statement in the Satyam letter to the Sebi that gives a clue -- it talks about 'riding the tiger, not knowing how to get off without being eaten.' Apparently once the books began to be falsified, the company embarked on a slippery slope wherein it could not right matters without things falling apart.
I suspect that in the intensely competitive IT services market, Satyam as the smallest of the big four players was under pressure to show extraordinary results in order to survive.
Was there anything more complicated? Was there unaccounted-for money being funneled in and out of Satyam? It is a known fact that rural Andhra Pradesh has rich landowners who have significant untaxed agricultural income: maybe there were informal arrangements whereby they funded -- and expected high returns from -- Satyam
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<b>It is surely going to be more difficult for other Indian IT service players to win business now, given that they will be tarred by the same brush. Competitors from other low-cost locations such as China, the Philippines, Vietnam, and Eastern Europe will certainly take advantage of the situation. </b>
This is something the IT services industry, facing as it is the threat of a serious reduction in business as fallout from the general market malaise, did not need.
<b>Undoubtedly, this is going to hurt the prospects of foreign money flowing into India in the near future as well; and it was anyway looking a little shaky in the aftermath of the Mumbai invasion and the prospect of war with Pakistan. This will help extend the liquidity crunch and will depress the stock market.
After all, India, running a substantial current account deficit, has been using inflows to help fuel its rapid growth. At a time when the incoming US President is warning of trillion-dollar deficits, India is quite likely to suffer from a cash crunch.
The overall growth prospects of the country, therefore, may also be affected. Thus, it is a disaster on any number of fronts. </b>
People have been quick to compare the Satyam incident is to the Enron scandal and to the Bernie Madoff Ponzi scheme. It might be equally apt to compare it to the sub-prime crisis, because the magnitude of the scandal, and its possible effects, are so large.
And it raises some serious questions: what causes this kind of behaviour? What can be done to detect and prevent it?
Why do people get into fraudulent behaviour? Perhaps, it just became a habit. There was a statement in the Satyam letter to the Sebi that gives a clue -- it talks about 'riding the tiger, not knowing how to get off without being eaten.' Apparently once the books began to be falsified, the company embarked on a slippery slope wherein it could not right matters without things falling apart.
I suspect that in the intensely competitive IT services market, Satyam as the smallest of the big four players was under pressure to show extraordinary results in order to survive.
Was there anything more complicated? Was there unaccounted-for money being funneled in and out of Satyam? It is a known fact that rural Andhra Pradesh has rich landowners who have significant untaxed agricultural income: maybe there were informal arrangements whereby they funded -- and expected high returns from -- Satyam
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