As the country continues to recover from the global downturn, the opportunities for and concerns over big-business corruption could hold back commercial development in the world's second-most populous nation.
When the Satyam accounting scandal erupted in January last year, after the chairman Ramalinga Raju confessed that the company's accounts had been falsified, India confronted a daunting reality it had often shied away from: many such white-collar frauds were simmering undetected.
A survey released this month by the audit and consulting company KPMG revealed many feared corporate fraud in India was growing unabated. Of the 1,000 companies that responded to the survey, 81 per cent said fraud, especially involving financial statements, was a "major threat".
And 75 per cent said fraud had grown in the past two years, 87 per cent said they suffered financial losses of at least 1 million rupees (Dh83,000) due to fraud last year. Only 47 per cent complained of the same in KPMG's 2008 survey.
"Volatile economic conditions and increasing business and technological complexities have led to increased opportunities for fraud," said the latest report. "Diminishing ethical values and a failure on the part of managers to act against deviations from established policies and processes were cited as reasons for the increase in fraud."
The increasing amount of white-collar fraud, analysts say, is symptomatic of India's weak regulatory environment, poor whistle-blowing mechanisms and the government's lackadaisical attitude towards law enforcement in the corporate sector, all of which hold back economic development.
"Control mechanisms are not in place in most organisations and hence, the need for risk mitigating strategies is unquestionable," the report said.
The risks of fraud has also grown as India's buoyant economy surges. The report cites eroding ethical values among employees desperate for pay rises.
"Executives vying for higher pay, weak internal controls and increasing competition ? for market share" are some of the reasons cited in the report. "It is time that India Inc sits up and ends its tolerance of unethical behaviour, bribery and corruption."
An "encouraging sign" is that a large number of Indian companies have started hiring forensic accountants to detect misreporting in accounting ledgers, KPMG notes.
"The need of forensic accountants is prevalent across industries," Deepankar Sanwalka, KPMG's executive director, said last month. "The current availability of industry specific forensic accountants is quite low and there exists a gap between demand and supply."
These mechanisms for detection of fraud through internal audits have improved, especially since the Satyam scandal, dubbed "India's Enron", came to light.
Mr Raju, the founder of Satyam Computer Services, admitted concocting key financial results of the company "for years" while overstating revenues and bank balances by US$1 billion (Dh3.67bn). He resigned his position and was subsequently arrested.
The magnitude of this fraud - the worst in the history of corporate India - sent shock waves across the country. Particularly unpalatable was the fact that Mr Raju was the chairman of one of India's largest outsourcing companies, which had boasted of being the "back office" of more than 185 Fortune 500 companies and having a network spanning 66 countries.
Before he fell from grace, Mr Raju was lionised by investors as a business visionary who shepherded his company to post profit margins exceeding 20 per cent every year. Buoyantly declaring a 28 per cent growth in revenue in the second quarter of last year over the same period the previous year, he told the media: "We achieved this despite a challenging global macroeconomic environment."
It turned out that Satyam's revenues had been overstated by 76 per cent and profits by some 97 per cent. The stated operating margin of 24 per cent actually stood at 3 per cent.
The fraud-damaged company was acquired last April by Tech Mahindra, in a joint venture between British Telecom and Indian conglomerate Mahindra and Mahindra. But the company had to endure a painful and wrenching phase of restructuring and transition.
The Satyam scandal exposed the reality that fraud posed an existential threat to companies, said Mr Rohit Mahajan, the executive director of KPMG's forensic services. "Companies are now willing to talk about it more openly."
After news of the scandal broke, the prime minister Manmohan Singh grimly warned that widespread corruption in the country was tarnishing India's image as an outsourcing powerhouse and could cost the country much-needed foreign investment.
But corruption in Indian business is endemic and greasing the palms of business associates is the norm. An estimate by CK Prahalad, a management expert at the University of Michigan, puts the cost of corruption to the Indian economy at up to 2.5 trillion rupees a year. According to the latest report by Transparency International, a UK-based anti-corruption organisation, India ranks 84 out of 180 countries in terms of corruption.
The government has vowed to tighten laws to curb white-collar fraud.
In February, Salman Khurshid, the minister for corporate affairs, said the government was working on passing a new companies bill to enforce stricter corporate governance rules, protect the rights of the minority shareholders, and bring about responsible self-regulation with adequate disclosure and accountability.
Mr Khurshid said his ministry was studying ways to keep a check on vanishing companies and prevent price manipulation in initial public offerings (IPOs). Indian companies raised a staggering 467.78bn rupees through IPOs in the current fiscal year, almost 23 times the sum gained in the previous year, according to a study by Prime Database, a New Delhi-based information services company.
Since the Satyam scandal, the government has also initiated action against some companies for fudging their accounts.
Last October, India's serious-fraud investigation office began an enquiry into Sesa Goa, the country's biggest exporter of iron ore, for "mismanagement, malpractices, financial and other irregularities".
In the same month, it also began investigating the finances of three companies owned by the Reliance Anil Dhirubhai group. At the time, A Raja, India's telecommunications minister, alleged in parliament that Reliance had under-reported revenues to the tune of 10bn to 15bn rupees from 2006 to 2008. "We are taking considerable steps forwards so that we can avoid something like Satyam happening again," Mr Kurshid said.
@Email:business@thenational.ae
Moon Music
Artist: Coldplay
Label: Parlophone/Atlantic
Number of tracks: 10
Rating: 3/5
COMPANY%20PROFILE
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Jigra
Starring: Alia Bhatt, Vedang Raina, Manoj Pahwa, Harsh Singh
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Indoor cricket in a nutshell
Indoor Cricket World Cup – Sep 16-20, Insportz, Dubai
16 Indoor cricket matches are 16 overs per side
8 There are eight players per team
9 There have been nine Indoor Cricket World Cups for men. Australia have won every one.
5 Five runs are deducted from the score when a wickets falls
4 Batsmen bat in pairs, facing four overs per partnership
Scoring In indoor cricket, runs are scored by way of both physical and bonus runs. Physical runs are scored by both batsmen completing a run from one crease to the other. Bonus runs are scored when the ball hits a net in different zones, but only when at least one physical run is score.
Zones
A Front net, behind the striker and wicketkeeper: 0 runs
B Side nets, between the striker and halfway down the pitch: 1 run
C Side nets between halfway and the bowlers end: 2 runs
D Back net: 4 runs on the bounce, 6 runs on the full
Our legal consultant
Name: Hassan Mohsen Elhais
Position: legal consultant with Al Rowaad Advocates and Legal Consultants.
KEY%20DATES%20IN%20AMAZON'S%20HISTORY
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What drives subscription retailing?
Once the domain of newspaper home deliveries, subscription model retailing has combined with e-commerce to permeate myriad products and services.
The concept has grown tremendously around the world and is forecast to thrive further, according to UnivDatos Market Insights’ report on recent and predicted trends in the sector.
The global subscription e-commerce market was valued at $13.2 billion (Dh48.5bn) in 2018. It is forecast to touch $478.2bn in 2025, and include the entertainment, fitness, food, cosmetics, baby care and fashion sectors.
The report says subscription-based services currently constitute “a small trend within e-commerce”. The US hosts almost 70 per cent of recurring plan firms, including leaders Dollar Shave Club, Hello Fresh and Netflix. Walmart and Sephora are among longer established retailers entering the space.
UnivDatos cites younger and affluent urbanites as prime subscription targets, with women currently the largest share of end-users.
That’s expected to remain unchanged until 2025, when women will represent a $246.6bn market share, owing to increasing numbers of start-ups targeting women.
Personal care and beauty occupy the largest chunk of the worldwide subscription e-commerce market, with changing lifestyles, work schedules, customisation and convenience among the chief future drivers.
Joker: Folie a Deux
Starring: Joaquin Phoenix, Lady Gaga, Brendan Gleeson
Director: Todd Phillips
Rating: 2/5
The%20specs
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BEETLEJUICE BEETLEJUICE
Starring: Winona Ryder, Michael Keaton, Jenny Ortega
Director: Tim Burton
Rating: 3/5
Company%20Profile
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COMPANY PROFILE
Founders: Alhaan Ahmed, Alyina Ahmed and Maximo Tettamanzi
Total funding: Self funded
Famous left-handers
- Marie Curie
- Jimi Hendrix
- Leonardo Di Vinci
- David Bowie
- Paul McCartney
- Albert Einstein
- Jack the Ripper
- Barack Obama
- Helen Keller
- Joan of Arc
The specs
Engine: 1.5-litre 4-cylinder petrol
Power: 154bhp
Torque: 250Nm
Transmission: 7-speed automatic with 8-speed sports option
Price: From Dh79,600
On sale: Now
UAE Tour 2020
Stage 1: The Pointe Palm Jumeirah - Dubai Silicon Oasis, 148km
Stage 2: Hatta - Hatta Dam, 168km
Stage 3: Al Qudra Cycle Track - Jebel Hafeet, 184km
Stage 4: Zabeel Park - Dubai City Walk, 173km
Stage 5: Al Ain - Jebel Hafeet, 162km
Stage 6: Al Ruwais - Al Mirfa, 158km
Stage 7: Al Maryah Island - Abu Dhabi Breakwater, 127km
COMPANY PROFILE
Initial investment: Undisclosed
Investment stage: Series A
Investors: Core42
Current number of staff: 47
What are the GCSE grade equivalents?
- Grade 9 = above an A*
- Grade 8 = between grades A* and A
- Grade 7 = grade A
- Grade 6 = just above a grade B
- Grade 5 = between grades B and C
- Grade 4 = grade C
- Grade 3 = between grades D and E
- Grade 2 = between grades E and F
- Grade 1 = between grades F and G
A%20QUIET%20PLACE
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WHAT IS A BLACK HOLE?
1. Black holes are objects whose gravity is so strong not even light can escape their pull
2. They can be created when massive stars collapse under their own weight
3. Large black holes can also be formed when smaller ones collide and merge
4. The biggest black holes lurk at the centre of many galaxies, including our own
5. Astronomers believe that when the universe was very young, black holes affected how galaxies formed