NEW DELHI: Satyam Computer Services chairman B Ramalinga Raju’s admission he had cooked the company’s books has undoubtedly left India’s fourth-largest software exporter struggling to survive the fallout, but his misdeeds may cast a cloud over the squeaky-clean profile of the entire sector, and by extension, the rest of the Indian corporate sector.
For years, Satyam and larger rivals such as Tata Consultancy Services, Infosys and Wipro were feted as among the new ambassadors of Indian industry with their corporate governance practices winning accolades around the world and their strong growth rates luring investors.
This looks set to change after Mr Raju announced on Wednesday Satyam’s famed cash pile was almost non-existent and its revenues and profits were inflated.
“In the short term, companies will definitely get painted by the same brush and Indian IT companies could come under a cloud,” says L&T Infotech CEO Sudip Banerjee, who till recently worked with Satyam’s larger rival Wipro Technologies.
The impact of Mr Raju’s misdeeds was visible on the Indian stock markets on Wednesday as investors exited the stock in a big way. Satyam shares plunged nearly 78%, and dragged down the broader market. Peers such as HCL Technologies closed 15% lower.
Some experts believe the damage will not be limited to the technology sector. “The impact is more on India Inc’s credibility, rather than brand India IT, as it is a wider problem and not sector specific,” Future Brands CEO Santosh Desai said.
Raman Roy, chairman and managing director of Quatrro BPO Solutions and regarded as father of Indian outsourcing, said the onus will now be on India’s technology sector to prove it does not have anything wrong in its accounting practices.
That must be frustrating for the sector’s top executives, most of whom have spent long years differentiating India’s IT sector from the rest of Indian industry as they built their firms to take on some of the mightiest in the world. It took a lot of hard work for Indian IT companies to build reputations that enabled them to stand alongside global names such as IBM, Accenture, HP, Cap Gemini and Atos Origin.
For an industry born in the late 1980s and gained traction around and after the Y2K crossover, Satyam’s revelations could not have come at a worse time. The global economic slowdown has slowed growth and forced them to fight harder for business in the $800-billion global IT services market.
Some believe while the $50-billion Indian IT sector could find customers questioning the quality of their books, it could also perversely be seen as a coming of age of the sector.
“The image of Indian IT existing as a standalone beacon unsullied by the goings on in the society around it has come unstuck. The assumption that since it’s the IT sector, so it won’t do fraud is proven wrong. IT is now as much part of the Indian business, with all its attendant ills. And with it Indian IT has kind of become real,” BBH India managing partner Partha Sinha said.
While the Satyam episode could temporarily cast a cloud over Indian IT firms, IT in India is unlikely to be as affected. Large overseas companies will still need to cut costs, and India will remain a preferred destination for doing so.
In the short term, overseas firms could still go to more familiar global names such as IBM or Accenture or CSC, all of which have significant operations in India. “The Indian global IT story, which was built on efficiency and costs not clean books, will not suffer any credibility issues globally as long as efficiency is not compromised,” said Mr Sinha.
“There could be a shift in customer loyalties. The solution for global customers will be delivered by multinationals if not Indian players,” says Avinash Vashistha, CEO of Tholons, which advises global firms on offshoring.
While the immediate impact on brand India IT could be negative, some experts believe such things are common around the world and can be easily restored by further strengthening governance practices in the sector.
“Every country has such incidents. Corporate governance standards of Indian IT, particularly the non-family owned firms, are very good and I believe brand IT will not suffer in the long run,” added Mr Banerjee of L&T Infotech.