Kray-ah-teef Accounting!

Increase in assets debit it, Decrease in assets credit it. My brains used to explode with such obscure jargons and with a torpor mindset in my first accounting class as my accounting teacher took it as a standard that everyone knows the basics and he is just refreshing it. But later when I entered the world of finance and with developing interest, I  came to know the significance  of these accounting standards and their influence on the image of the company, the business as a whole and especially to shareholders who hold the business and  impart meaning to them.I was happy studying finance during my management days which inoculated knowledge within me but also exposed me to the dark side of it when I started learning the ways with how finance professionals do Window Dressing in balance sheets and P and L accounts which when caught became Frauds. Every intellect of finance while completing CA or CFA or MBA in finance gets a idea how to manipulate balance sheets and income statements to have a feel good effect on shareholders and market as well as they reveal your smartness to the top management.Since a better balance sheet and P and L account helps to show a stronger market position,helps to influence market share, reduce liability for taxation, hide liquidity problems, ward take off bids,satisfy the demand of major investors and thus window dressing later was better known as creative accounting.

The Satyam fraud which happened during my management days made a deep impact on my mind. The reason was Satyam visited my campus last year and I was on verge of getting selected .Well the surprise was ,the HR lady was a banking head and was so much gaga about the company.The friends who later joined satyam, what really  happened to them is of  no use to discuss here but what is more important is Satyam ended with 5361 crore as inflated cash, which in reality was 5040 crores.The accrued interest of 376 crore,liability of 1230 crore, overstated debtors position and even operating margin of approx 590 crore diff with the actual. The Satyam case retreated the need of International Financial Reporting Standards in India where ENRON made the reason to have proper financial reporting standards in countries like US as well. Enron reported to have 100 billion dollars of revenue where Arthur Andersen did amazing creative accounting ways to show ENRON as a blue chip company and the company misused the shareholders hard earned money in various ways.While Kenneth lay had paid the price , Ramalinga Raju survived the loopholes of Indian standards of dealing such cases.


IFRS is basically International Financial Reporting Standards issued by International Accounts Standard board(IASB). 100 countries have implemented IFRS and are coordinating with them and IASB is a 14 member board from nine countries which decide the Standards. The accounting standards have been built because there are differences in US GAAP and Indian GAAP as well as accounting standards followed in different countries.

Small and Medium companies in India are still not prepared for IFRS.The IFRS is a costly exercise which includes an overhaul of operational and IT processes apart from training cost. The government had hinted for preparing a watered version of IFRS.The ICAI has indicated that all entities having excess of 1000 crore will implement IFRS.

I was amazed when during my session at IIM Calcutta one of the finance head of a leading Multinationals told me the difference in auditing standards of Price water coopers and KPMG. Probably with implementation of IFRS the base would be built for better and transparent accountancy. The day is near when innocent shareholders will not be mesmerized with wrong data and rising figures as there would not be any space for creative accounting but rather will reveal the real health of company and its standard.Lets Hope industry developing ethical standards with such transparent methods,the day is not far when implementation of these would be read as case studies in management classes rather than ENRON and SATYAM fraud cases.

Jai ho!

The Tiger weeps in dark!

Is Indian system full of prodigious hatred and humdrum nature where every task seems quotidian.Well  I know many would tend to term me the Philosopher of The black Idealogy where am not still satisfied with increasing growth rate, a good number of Multinational companies coming to India every year and Leaping sensex every day and if we all hear swami ji of the Times of India , the tiger is gonna take a  step ahead against the dragon in years to come, but alas since I am a critic and will always speak from the brain and not from the heart and the reality is we are still not prepared for the colossal growth which will turn India to be the hub of Knowledge,Technology and Power and finally being The Vishwaguru , the leader, the visionary and the Pathfinder, which  our ancestors and fellow economists have dreamt in past.

The way Companies and firms run in India is disastrous , where goals and strategy is not set by calculative and systematic approach but 50 percent on market sentiments and 50 percent by peer pressure of the senior management.I would certainly love to ask how many companies in real sense do real forecasting, analysis and anticipate  the market conditions and prepare themselves beforehand.I would say its sheer Indias strong internal economy and buying power that saved the economy from recession last year. Its like crossing the barrier for Business Analysis team who are damn good experts in excel and making graphs where the results are amazingly subjective and not practical. What has made Microsoft amazingly so innovative or GE the most well organized companies of the world is their way of approach which we Indians have never learnt.I hope Reliance acquiring Lynodell Basell would bring a change in Indian ideaology and they will be more effective in decision making and calculative in their approach as if not ,they will certainly die,facing stiff competition from the International players who are more intelligent,  more research oriented and effectively closer to real results. The exception to the fact is Malvinder Mohan Singhs shrewdness  in making Daiichi overvalue Ranbaxy where he knew very well the real time to sell Ranbaxy as unlike most Indian busineesmen who tend to be too much emotionally attached with the business and this approach has been a change in Indias new business perspective which everyone needs to learn.But there are not many like the Ranbxy chief.

The major factor for attraction for a MNC company in India  is  rising population which is well educated well trained and have spending power. While the gap between the rich and poor is increasing day by day, where the rich becomes richer and poor more poorer, India still remains the apple of the eye for the investors.While the FDI flows have increased every year, most of the part of FDI was not stagnant due to the frequent changes in the market.

The Indian society still suffers from many diseases. The thought process is still me instead of we.

Every Indian suffers from the mental disease of competition and not being united when it comes to term like growth and developing India as a whole. India by luck I should term it luck as there was no strategy involved, became a investors hub but India still does not know how to use  the growth for more avenues  and rising FDI inflows for infrastructure development. The government approach has been slow and even if Congress and BJP both have given a positive support to liberalization making India a perfect competitive market in long run have not shown results intended in the long run.

Narendra Modi and Nitish in Bihar have not got the media hype for making the resources in use for making India proud, Indian mentality has never came out from caste culture and creed. I am sorry to say that even a average literate man knows nothing about Inflation, interest rates, foreign policies of current Govt as he accepts the way things come to him and take the voting day as holiday.

The situation becomes poor when Companies also suffer from existing rules and process. Things become more complicated when they try working in microeconomic situations where the strategies are for macroeconomic ones where every Indian state and locality is a nation in itself with its own idealogy.

Indian Government and the bureaucracy has been the main reason of slowness of momentum of growth. India could have achieved the desired but have not used the opportunities and always bounded itself in restrictions. The time has come for government and people to understand that a double digit figure of growth will never make India Proud. The objective should also be to increase per Capita Income, increase in Gross National Income based on Purchasing power parity (PPP)  and development of rural India, with better foreign policies and Infrastructure because when the Tiger will roar, it will make the Jungle hear its voice!

Fortis clinches Wockhardt deal- The biggest deal ever !

Delhi based Fortis have acquired 10 hospitals from Wockhardt. Price of the deal :- Rs 909 crore(Biggest deal ever)

Specialities of the deal :-

1. Fortis will use Rs 350 crore from a proposed rights offer and debt to fund the acquisition.

2.About 33 percent would immediately get added to EBIDTA numbers.

3.Fortis has been able to cherry pick the  most suitable assets and made a pan India presence.

4.Wockhardt will be able to come out of huge debt of around Rs  2700 crore

5.Valuation done on the basis of number of beds and infrastructure.

Kind of Win-Win situation for both, what do you say!

Barack Are you the saviour !

In the G20 summit , this year, the, American president stood up and said the american voracious consumer cannot only drag the world out of recession, everyone has to play its part. Well president Barack obama got america,and presidentship at that point of time  when it was facing all sort of issues from his predecessor George Bush Junior who was a failure like his father in all aspects.

On december 6, 2008, Barack came on national channel when 533,000 jobs were lost in November alone, the single worst month of job loss in over three decades, with  a challenge of how can he revive the economy back. His economic recovery plan which will create two and half million jobs while rebulid the infrastructure with developing roads and improving school education. He wanted that the public buildings be made more energy proficient.He promised to upgrade the federal builidngs and making the federal highway system. Barack when was promising these to common man..knew very well that it will not be easy for him to implement all but he knew even if he did half of it , america can come out of recession and atleast be stable, if not be in the best of situations. The bush adminstration was at fault when the subprime crisis started and was not able to control its effect not only in america but to the whole world.

The 787 billion dollar economic stimulus package known as the Recovery Act, helped  to make the economy revive stronger from ashes.The Recovery Act included help for homeowners in danger of foreclosure to pay their mortgages, measures to unfreeze credit markets; extensions of unemployment benefits,tax cuts for middle income Americans, and investments that are putting people back to work rebuilding and renovating roads, bridges, schools, and hospitals.

The US jobless rate hit a 26 year high of 9.5% in June as more employers retrenched. Some expect the unemployment rate to rise to 10% or higher. Commerce Department revised figures showed a 6.4% decline in the first quarter of 2009, worse than the previous estimate of a 5.5% drop. In the fourth quarter of 2008, the drop was revised to 5.4% instead of 6.3%.Other revisions from 2008 showed a weaker GDP than originally estimated, with growth of 0.4% for the full year instead of 1.1%. Some economists warn that rising unemployment could dampen any economic recovery.(Source:- CNN reports).

Barack had a real tough time in front of him and may be he had many sleepless nights, in trying to change the hardcore american mentality. Americans have been buying and selling in credits. Banks have been ruthless enough to provide them with loans they can never repay. A average american lives and dies in credit.

While Goldman Sachs estimates that the US  will drop into recession this year saying Federal cut would be like around 2.5 percent a year, barack s recovery scheme seems to be Failure. But with markets slowly reviving  up, I hope barack  finally gets a praise,for his fight. The good part is he is open to all changes and has has shown that with time , he is ready to take stringent decisions. The Franklin.D.Roosevelts depression and Baracks Recession have turned gears and the world is asking...Barack are you the saviour!

Budget from Pranab

I should have posted this long back, but its never too late.In the end, it was a real Budget for India.Ignoring stock market expectations, finance minister Pranab Mukherjee stressed on inclusive growth following the electoral victory of the Congress-led United Progressive Alliance (UPA) in the 15th general election with an unexpectedly comfortable margin. The Budget, promised reforms,laying down a few concrete markers to signal direction and action, and then went on to deliver in actual terms by boosting total government spending by one-third to a record Rs 10.21 trillion, directed largely towards social sector programmes, and tax give aways that will provide extra income in the hands of the working middle class taxpayer both targeted at creating demand and reviving growth. This extra spending is over and above the Rs1.86 trillion announced by the government in three fiscal stimulus packages over the last seven months.India, like many other countries, is trying to spend its way out of trouble only understandable because the contraction in exports (due to recession) has shaved off a fair chunk of demand, and the decline in private consumption, another bit. As a result, the economy is demand-deficient. The thinking implicit in Mukherjee’s Budget speech is that it makes sense to let growth lead reforms at this point in time, rather than the other way around. But therein lies the mstake and the single biggest macroeconomic risk in the Budget.The cost of extra spending, especially with tax revenues taking a beating as the economy continues to expand at a slower pace, will result in a larger than expected bump up in the government’s gross borrowings, or fiscal deficit. It is projected at 6.8% of gross domestic product close to levels last seen in 1991. With interest payments projected at almost one-fifth of total government expenditure, the country is dangerously close to a fiscal disaster. Still, this is a clear macroeconomic gamble that the UPA has taken. It is on hope that the extraordinary circumstances that the country finds itself in following the global meltdown, and is based on some key assumptions and the belief that growth cannot be compromised. And, it is consistent with the UPA’s ideological stance that without growth it can push neither its political agenda for inclusion nor that for reforms. This theory also formed the core of the Economic Survey presented to Parliament last week which posited that the economy would recover from the third quarter, provided there is a normal monsoon this will become clearonly at the end of the month and the US economy bottoms out by September. Now, one can fault the finance minister for making these assumptions, but not for not thinking out of the box. However, there is a tacit admission in the way the things on social sector programmes will be spent that the existing delivery mechanism is woefully inadequate. Beginning with the National Rural Employment Guarantee Scheme, the government has progressively moved to a system of direct cash transfers essentially, disintermediating by ignoring the existing delivery mechanism.The lacuna in the Budget is that there is the promise to change this, but no commitment in practice. The short cut cannot be a solution. While growth is the central focus of the Budget, Mukherjee has left clear indications that the government is committed to the process of second generation reforms. But, given his political acumen and the fact thatthe UPA is acutely conscious of its pro-poor stance, he sought to play down the reforms he said in the Budget speech. Also, he has been careful to leave out anything that can be politically controversial. Still, not only has Mukherjee signalled his intent, but has also detailed concrete measures.The fault, if any, may have been in the understatding of  delivery of the message.Mukherjee’s most important reform commitment is, ironically,on his promise to restoring fiscal discipline something that the stock markets believe he has been remiss about. While Mukherjee has suspended all fiscal rationality for the moment, he has unequivocally indicated that he is committed to the task and, more importantly, that the Budget is not the only place and time to initiate such reform, and that there will be more opportunities later in the year. Mukherjee has essentially ordained a game changer that will once and for all completely free fertilizer prices and do away with the existing complex subsidy apportioning mechanism, which has retarded fresh investments in the business. Now, farmers will be directly reimbursed by thegovernment. While Mukherjee has not explicitly said so, the government’s eventual move to a targeted subsidy regime suggests that in the long term only small and marginal farmerswill be retained in the subsidy net. The third initiative that Mukherjee has proposed, but probably deliberately not fleshed out, is the sensitive issue of petroleum pricing. It has been clear for a while that something drastic needs to be done so that the subsidy on petroleum products is restricted only to theneedy, and the minister seems to suggest that this will happen, but outside the Budget. The fourth reform effort is the return to divestment, cleverly couched in a people’s participation initiative and devoid of specifics. Here again, it is what he has left unsaid that holds the sting. By saying explicitly that the majority stakes of the government in banking and insurance companies would not be given up, Mukherjee may be implying that he has given his ministerialcolleagues considerable room to push majority stake sales in other sectors. Whether the government will seize this policy opportunity is an entirely another matter.The  stateowned Oil India Ltd and NHPC ltd will hit the capital market with their initial public offeringsin August and September. Four more companies based on overall framework and design will be identified (for disinvestment) by the department of disinvestment in consultation with ministries. And, finally it is in tax reforms that the minister has lent a singular thrust. Underdirect taxes, Mukherjee haspromised stability by notchanging the rate structure. At the same time, he has got rid of all the bad taxes, such as the fringe benefit tax, commodity transaction tax and the surcharge on personal incometax,all legacies of his predecessors.Alongside, he has promised a draft direct taxcode in 45 days that will cementrates, do away with exemptions and prepare thecountry’s tax administration for a new age economy.Under indirect taxes, the biggest reform commitment has been the  guarantee that thecountry will stick to the deadline of 1 April for the introduction of a dual goods and servicestax (GST). This will, for the first time, unify the country as one single economic market. At the same time, Mukherjee has provided a major building block for this transition by bringing the Indian Railways under the service tax net. Since the railways is a large entity and touches almost every aspect of the Indian economy,this will make the transition to a GST regime that much easier.In the final analysis, it is clear that the Union Budget for 2009-10 has, recognizing then unprecedented global crisis,made growth its clear focus. At the same time, it has made astatement of intent and quietly launched initiatives that reaffirm the government’s commitment  to second generation reforms. It is, as the finance minister said at the outset of his 100-minute speech, the first policy thrust of a new government that has secured another five years for itself and the politics of which is defined by inclusive growth.        Hail Mr Pranab for your efforts if it really works for India!