S&P may revise India ratings after polls

Nusa Dua (Indonesia): Standard & Poor’s may revise its credit rating on India as early as July after the next government outlines its fiscal policy, a senior analyst said on Tuesday.

The ratings agency also believes that recent signs of global economic recovery are prompted by government stimulus packages and that another downturn could still be possible, Elena Okorotchenko, S&P’s senior director for Asian sovereign ratings, said in an interview.

“Once the new (Indian) government is in place, we will be talking to them in order to understand their additional fiscal measures and how this would reflect on their budget performance and debt burden both in the short and medium-term,” she said.

“Depending on what we learn from this, we may be able to act either by affirming the rating and revising the outlook back to stable or downgrading.”

Okorotchenko spoke to Reuters on the sidelines of the Asia Development Bank’s annual meeting, held in Indonesia.

India’s month-long elections are due to finish by the middle of this month and the next government is expected to take office in June.

India’s deteriorating finances and swelling budget deficit have been a growing concern for investors, with the current government sharply increasing borrowing to pay for economic stimulus programmes.

Goldman Sachs expects the total Indian central and state deficit to have risen to 10.3% of gross domestic product during the financial year that ended in March 2009. That would be among the highest in the world, and an increase from 6.3% a year earlier.

S&P in February changed its outlook on India to negative from stable, indicating it was considering a cut in its rating from BBB-minus, the lowest investment grade rating.

A sovereign rating is an indicator of a country’s financial health and a downgrade could raise the interest rates paid by the government and companies when they borrow money.

It still may be too early to speak confidently about “green shoots”, or initial signs of an economic recovery, Okorotchenko said.

“It’s great to see these green shoots. But what we are observing now is the result of the unprecedented fiscal stimulus. The governments have indeed managed to alleviate some of the financial, economic and social pressures,” she said.

“But if the fiscal stimulus fails to re-ignite the economies -- namely, private consumption and investment -- then we may experience a double-dip recession scenario.”

An Indian outsourcing hot spot chills out

By Mehul Srivastava

GURGAON: The terrace at the Hao Shi Nian Nian ("Here's to the Good Life") restaurant in Gurgaon's Central Plaza Mall offers a good sense of the city. A short drive from glass-fronted buildings that house Nestlé, American Express, and other multinationals, the Chinese restaurant is among the top lunch destinations in this suburb of Delhi, India's capital.

But on a recent weekday, the place has few customers. After the dumplings arrive, the manager declines to talk about his sales, but a waiter pouring water whispers bravely: "It's bad. No customers. No tips. I should get a new job." In the parking lot, used-car salesman Sachin Kulkarni displays late-model sedans, including a one-year-old Honda Civic sold by a couple who both lost their jobs. "People just look," Kulkarni says. "They don't buy."

Gurgaon's problem is that its economy has become intertwined with America's. A decade ago, Gurgaon was little more than a farming community. Then outsourcing boomed, and the town became a preferred location for companies that answer phones, create PowerPoint presentations, and do other business tasks for U.S. clients. As outsourcers added thousands of workers every month, developers rushed in and built offices and apartment towers.

The once-bucolic community has become a city of nearly 1 million and a nightmarish version of what India aspires to be—a destination for global investment—with water shortages, iffy electricity, and horrific traffic jams. "As things have slowed, Gurgaon's mentality has been affected. People are more conservative," says Nitin Aggarwal, director of research at Pipal Research, an outsourcing company that grew from five employees in 2002 to over 300 by last December, but which has put further expansion on hold.

Gurgaon is especially vulnerable because of the nature of the work it does. Higher-end jobs such as writing computer code typically go to Bangalore and elsewhere in the south because of that region's top-notch schools. Gurgaon is mostly lower level: call centers and business process outsourcers. With less work, these shops are starting to close, says Sukant Srivastava, country chief for Convergys, a Cincinnati-based outsourcer with 12,000 workers in India, about a third of them in Gurgaon. "The effects of the slowdown are beginning to show," he says.

Gurgaon isn't a ghost town. There's still enough traffic to make commuting unpleasant, for instance. But while India's economy may expand by 5% this year, the 9%-plus growth of recent times is gone and Gurgaon is feeling that decline more than most other places. In the second half of 2008, as American and European clients hit the skids, India's outsourcing industry saw contracts shrivel by 22%, its worst performance in a decade, according to research firm Technology Partners International. "We haven't seen large-scale layoffs," says Sid Pai, TPI's India director. Then he corrects himself: "We haven't seen large-scale layoffs as yet."

Nobody in India collects layoff data, but every day papers carry dire news: 200 workers cut from an American Express call center, 300 from Boston-based Sapient, 80 or so at Motorola. At a café, young engineers huddle over a laptop, dissecting an online rumor that Wipro Technologies, India's No. 3 IT provider, might lay off 5,000. (Wipro denied the report.)

DEVELOPMENT ON HOLD

The economic woe is taking its toll on the developers that built Gurgaon. As demand has eased, some 28% of commercial real estate here is vacant, compared with shortages a year ago. Office rents have dropped 25% and will continue to fall, says Sanjay Verma, South Asia head for real estate consultancy Cushman & Wakefield. "People are just waiting and watching before making any commitments," he says.

That's easy to see as you head toward the heart of Gurgaon from the Central Plaza Mall. On Golf Course Road, a few workers mill around half-completed buildings. At the Narsi office complex, huge signs advertise deep discounts. "I can give you a great deal, no rent for the first two months," says a real estate broker. "Just don't tell anybody." At the Sahara mall, a bored clerk points to a rack of men's clothing. "Eight suits for the price of three," he says. Still, he hasn't sold one in three weeks.

The bad news has the city fathers fretting that their revenues will plummet. In a dingy tax office the electricity is out, the telephone rings constantly, and an ancient computer is covered with a cloth. A disheveled clerk shows reams of printouts to A.K. Singh, a local tax commissioner. "Collection is down, certainly, this year," Singh says, marking the pages with a red pen. "Wait until June, when the final numbers come in. It will be drastic."

The new buzzword in Gurgaon is consolidation. Larger companies hope they have the cash to hold on while the global economy recovers, perhaps even enough to buy a rival or two. "Clients just aren't moving on proposals," says Ashish Gupta, chief operating officer of Evalueserve, an outsourcer with 2,400 employees, 2,000 of them in Gurgaon. "Smaller players are struggling. ... Many of these guys could get wiped out."

Srivastava reports for BusinessWeek from New Delhi.

Chinese workers urged to puff up economy by smoking

CHINESE STATE employees are being asked to do their patriotic duty to support the local economy – by lighting up a cigarette. And no butts.

In Gongan county in Hubei province, the order has come down from above that employees of all local government departments, organisations, service centres and corporations must consume at least 23,000 cartons of cigarettes this year.

This translates into 400 cartons for most departments and state companies, and 140 cartons for each school.

In a law which gives a whole new meaning to the phrase “the state picks up the tab”, cadres are required to smoke local brands, and anyone smoking other brands can be fined. The smoking allowance aims to boost the regional economy by encouraging more consumption of local cigarettes.

Each work unit in the local government has to produce a monthly work plan, which outlines rates of consumption by employees.

This plan will be closely monitored, and if the bureaucrats and civil servants fail to smoke the required amount, their department risks losing out on its full share of the full smoking allowance of four million yuan (€440,000).

During one school inspection at Zhangtiansi Middle School in April, officials going through waste paper baskets in the staff room found three butts from cigarettes made in other provinces, and the school was strongly criticised.

A fine of 1,000 yuan (€110) can be imposed, although in this particular instance the transgression is being used as a test case to show the way to observe the new ruling.

The local government hopes to retrieve losses from cigarette income tax with the decree, said Chen Nianzu, a member of Gongan’s cigarette leadership group.

“We’re guiding people to help contribute to the local economy,” said Mr Chen, according to the Hubei Daily newspaper.

This patriotic smoking drive follows pressure earlier this year on cadres in Hefei province and other citizens to buy apartments as part of their national duty to keep the real estate market afloat.

China has more smokers than any other country, with 350 million puffing away regularly. A million die of smoking-related diseases every year.

The government has introduced more anti-smoking measures recently to try and encourage people to stop, such as introducing no-smoking areas and trying to educate children not to smoke.

Internet commentators were outraged at the move. “Why should we use public money to pay for government officials to smoke?

“If they want a fag, they should buy their own, and put the money into social welfare, healthcare and stopping people from smoking,” wrote one blogger.

How To Rescue Capitalism

Michael Maiello, Forbes.com

Janet Tavakoli, an expert in complex derivative securities and the author of Dear Mr. Buffett: What An Investor Learns 1,269 Miles From Wall Street recently sat down with Steve Forbes to discuss the lingering financial crisis and the future of Wall Street's banks. Tavakoli, who saw trouble brewing way back in 2005, believes that we still need an accounting of the crisis and maybe some perp walks for bank executives.

Currently, Tavakoli is especially skeptical of prospects for JP Morgan Chase, one of the banks that has best weathered the crisis thanks to Chief Executive Jamie Dimon's "fortress balance sheet" strategy.

On Dimon, Tavakoli remarked: "He didn't talk about credit cards. He was very quick to talk about mortgage brokers and predatory practices among mortgage brokers. But we've had a lot of predatory practices in credit cards."

She then predicted that as unemployment rates continue to rise (and they will, even after the economy bottoms) people with high-interest credit cards "are going to walk away from that debt and the charge-offs will be higher than he's recommended. Furthermore, he didn't talk about predatory practices like targeting people who are in bankruptcy or people who are just exiting bankruptcy."

Card issuers actually like to give high-fee credit to people in or just out of bankruptcy because a debtor can only seek personal bankruptcy protection once every eight years.

All of this could mean more losses for banks, Tavakoli says. This is in line with predictions by analyst Meredith Whitney, a previous Intelligent Investing With Steve Forbes guest who believes that banks like Citigroup haven't adequately reserved for credit card losses.

After her interview, Tavakoli sent a short essay to Steve Forbes outlining her belief that the financial system was laid low by predatory lending and predatory securitization. Her essay expanded on the themes of the Intelligent Investing interview (you can watch it here) and we offer these relevant excerpts from her essay for those who'd like to know more about how we got here and what's to come:

"As the mortgage bubble inflated, the motivations and viability of thinly capitalized mortgage lenders were not challenged. The explosion of predatory loan products--unprecedented in the risk they posed--was unchecked by regulators. Regulators seemed to actively ignore the shocking slippage in underwriting standards by our former investment banks and other financial institutions. Furthermore, dodgy practices still pervade large pockets of mortgage lending, credit cards and auto loans. Excessive leverage combined with riskier loan products in commercial mortgage lending and corporate lending have exacerbated the crisis.

Regulators failed to make sure banks maintained adequate capital cushions, and managers of financial institutions failed in their duty of care. But the global financial meltdown is not the result of an unfortunate mathematical error or an errant model. Predatory lending and predatory securitizations combined with excessive leverage and dodgy accounting contributed to our current crisis. This was not an innocent mistake. Rather Wall Street's financiers fed models misleading data to concoct securitizations in financial meth labs that both hid losses and destroyed value. There were no outliers, just outright liars."

In her interview, Tavakoli called for the regulation and compression of the credit default swap market, something that's actually occurring as the Intercontinental Exchange works to build the first transparent CDS exchange. Until recently, these transactions were all entirely private.

But that's not enough for Tavakoli, who'd like to see stricter regulation on the securitization and issuance of credit and credit products. Without that, she says, "Capitalism as we knew it will eventually perish. It will be permanently replaced by a financial sector oligarchy that holds sway over a once democratic government that failed to protect our money."

The three phases of the Satyam scam

New Delhi: An analysis of the report by the Serious Fraud Investigation Office (SFIO) on the swindle at Satyam Computer Services Ltd shows manipulation of software, and lack of audit controls and systemic review.

The fraud can be divided into three phases. For nearly three years since 1999, the firm rode on the Y2K phenomenon, which saw India’s software industry get huge orders and earn good profits.

The second phase began in 2001. According to the SFIO report, the falsification of accounts started then to keep Satyam’s share price high. The company had gone public in 1992.

Riding on the high price, Satyam promoters offloaded their shareholding in the market and used the proceeds to buy land. In fact, founder B. Ramalinga Raju had set up as many as 374 infrastructure firms and eight investment companies to help him become a land baron, the report has found. This phase continued till 2004, which was when things started going wrong.

The third and final phase started sometime in mid-2007 and continued till Raju’s confession on 7 January this year. During this period, the company showed huge cash balances and fixed deposits in several banks of international repute. It was, however, actually starved of funds and the promoters were desperate to raise money to keep the company afloat.

On 18 December last year, two days after the Satyam board met and decided to acquire two group firms—Maytas Infra Ltd and Maytas Properties Ltd—independent director Krishna Palepu received an anonymous email.

The writer went by an alias, Joseph Abraham, and has been declared the whistle blower in the case. This email laid bare the fraud.

Palepu forwarded the email to another independent director, M. Rammohan Rao, who chaired the Satyam audit committee. Rao forwarded this email to S. Gopalakrishnan, partner at Price Waterhouse, the company’s auditors.

Gopalakrishnan told Rao over phone that there was no truth to the allegations and assured him of a detailed reply in a proposed presentation before the audit committee on 29 December.

That meeting never took place. A new date—10 January—was fixed.

Raju knew the clock was ticking for that audit meeting could have seen the committee members pose tough questions. Raju had not taken Rao’s calls seeking an answer to the allegations in the whistle blower’s email.

Three days before the meeting, Raju confessed to India’s biggest corporate fraud.

Three big Satyam clients pledge to stay with company

NEW DELHI: In a news that could bring cheer to Satyam employees, three of their big clients Nestle, Nissan and CIBA who were on wait and watch mode have assured to continue business with the firm.

"Clients such as Nestle and Nissan has already expressed confidence in the company and had assured us that they will continue with us," an official privy to the development said.

One of the multi-million dollar SAP client of Satyam, Nestle, which was earlier keeping a tab on the developments has also given some additional business to Satyam last month, the person added.

Analysts had feared that post the acquisition of the firm by Tech Mahindra clients of Satyam who were sitting on the fence would jump to other vendors. However, post the acquisition some of the companies had expressed confidence in the entity and pledged to continue business with them.

Auto major Nissan for whom Satyam provides application management had also said they would continue business with the firm. The company has also got an endorsement from another SAP client CIBA.

Moreover, UK, Switzerland and Germany who have earlier imposed some strict norms on Satyam employees for getting Visa have eased them.

Post the Satyam crisis, employees of Satyam were asked to be present in person and appear for visa interviews. However, now they have eased the norms and the employees need not be present for the interview in person.


Satyam Computers plunged into crisis after its founder B Ramalinga Raju in January admitted to have cooked the books of the company for year.

In April, IT firm Tech Mahindra announced to acquire a 51 per cent stake in the beleaguered firm for Rs 2,900 crore.

Earlier, the government-appointed Chairman of Satyam Kiran Karnik had said that though some clients have left the company but Satyam have got some new work as well.

Geetanjali Krishna: Smart voter-IDs needed

The other day, I caught up with some old friends, all of whom happened to belong to (or lived in) some of Uttar Pradesh’s (UP) smaller mofussil towns. Inevitably, the conversation veered to the general elections and the general lawlessness that usually prevailed in UP during past elections. Each tale told was taller than the other, and most revolved around the fact that voter ID cards were so easily fudged. “I know many people with multiple voter identities,” one friend said boastfully. “That’s nothing,” said the other, “I have known of people who’ve voted at least five times in one election after erasing the ‘indelible’ ink from their fingernails before it dries!” Others spoke of the time when they went to vote, only to find that someone had already voted against their name.

The tales were tall, but could well be true. For when we were in Bhadoi (an eastern UP district) during the 1998 general elections, we’d seen all this and more. I still remember a story that the then Superintendent of Police of Bhadoi told us. A burkha-clad woman came to cast her vote, but the presiding officer suspected she’d already done so earlier. He couldn’t get her to raise her veil without incurring her community’s ire. But when he began quizzing her, she turned tail and ran. The veil slipped and everyone realised that the ‘lady’ was a bearded man! Although he was arrested, he became a hero. For he wasn’t alone: Tales of one-person-many-votes flew fast and furious around us during that time.

Anyway, the evening ended, and I was left wondering how we as a nation can actually ensure, that if not this one, then at least our next general election is free and fair. The only answer that kept coming back to me was to ensure a better system of identification of voters, so as to avoid irregularities in the voting process. That’s when I remembered Chennai-based Kris Dev and his biometric I-cards. Identification that is based on fingerprint and iris recognition (the two most-commonly used unique biometric criteria), is almost completely foolproof. And accurate identification would certainly mean an end to some of the election-day madness we’d been swapping stories about.

“I believe that biometric voter cards (which use either fingerprints or any other form of unique physical identification) will ensure total accuracy in identification of registered voters,” said Kris. What a biometric voter card would mean is this — when a voter goes to cast his vote, a computer will tally his/her fingerprints with those recorded on the voter card. If they tally, s/he may vote. If they don’t, s/he can’t vote. “There’s no scope for bogus voting in this,” said Kris, “even Bangladesh adopted this technology in its 2008 elections.” He is happy that this time at least one political party has promised (in its manifesto) to implement biometric voter cards if it comes to power. “But most parties are against such cards, as they rely on rigging elections to win seats,” he said.

In fact, Kris is promoting a single multi-use smart card like the one used in Singapore: “The card may be used as a passport, voter ID and driving licence, as well as to record details of electricity, water and other connections,” he said.

With 16 or 32 GB memory, this card could act as a voter I-card, driving licence, bank passbook, passport etc — and would be almost impossible to duplicate or falsify. Only then, said Kris, would the election results truly reflect the will of the nation, adding, “and we’ll see a transformed India.”

House of Satyam CEO(Ex) Raju

http://andhraallinone.blogspot.com/2009/05/house-of-satyam-ceoex.html

'Indian firms should focus more on patents'

New Delhi, April 30 (IANS) Indian companies should increase spending on research and development (R&D) and focus more on patents to protect their technologies, industry experts said here Thursday.

'Copying is stealing. It's important that companies are educated about the advantages of patenting their technology,' Dominic Keating, secretary for intellectual property (IP) at the US embassy here, said.

He was speaking at a seminar organised by the US embassy and the American Chamber of Commerce in India (AMCHAM).

Quoting a World Bank report, Keating has said the aggregate domestic R&D spending of Indian firms has never exceeded 1 percent of the country's gross domestic product (GDP), and 80 percent of this comes from the public sector.

'Indian companies, particularly the private ones, should invest more in research and development activities,' Keating later told IANS.

Of the top 50 applicants for patents in India, 44 were foreign firms and just two of the remaining six were private Indian firms.

'This is a very good time for Indian companies to apply for patents,' he said.

Small and medium enterprises (SMEs) should also come forward to protect their inventions and technologies through the patent system. 'It gives them a competitive edge and it's the way to the future,' Keating said.

Arpinder Singh, executive director of global consulting firm KPMG, shared similar view: 'Awareness needs to be created about the patenting advantages. Companies, especially SMEs, should monetise this opportunity.'

He added that the government should step in and create an IP (intellectual property) section to help the SME sector, as small enterprises may find its difficult to raise enough funds to apply for patents.

According to Deepak Maheshwari, Microsoft director (legal and corporate affairs), patents ensures more transparency and healthy competition.

'Patents bring in efficiency, consistency and self-check. It encourages healthy competition and overall growth,' Maheshwari told IANS.

`Wipro sacks more on non-performance’

BANGALORE: India's third-largest IT services company, Wipro, reportedly saw another round of layoffs recently. According to website Siliconindia, the Bangalore-based company laid off an indefinite number of employees last week on non-performance grounds.

The news report quotes an employee, who has been laid off, saying that around 300 employees were laid off on a single day. The employee said that many had to wait for a long time to get back their documents, after being told about the company's decision.

Recently, Girish Paranjpe, joint CEO of Wipro's IT business, said that the performance criteria has become tougher now, because of the slowing economy.

In just-announced Q$ results, Wipro outperformed its larger rivals Infosys and TCS both in terms of profit and revenue growth. The company announced a 25% growth in total annual revenues in 2008-09 at Rs 25,544 crore and a 19% rise in net profit at Rs 3,899 crore. Its fourth quarter brought in a net profit of Rs 1,010 crore (growth of 15% over the corresponding quarter a year ago) and revenues of Rs 6,452 crore (13% growth). IT services brought in most of that, at Rs 4,932 crore.

In September last year, Wipro had put about 4-5% of its workforce, about 2,400-3,000 employees, under the scanner for non-performance. The company said that while some would be given counselling to improve their performance, others would be asked to leave.