FM’s cookbook rivals Ramalinga Raju’s
On January 7, Satyam’s Ramalinga Raju sent a 1,069-word confession saying he doctored the accounts of his company by inflating the assets, mostly cash and bank balances.
On January 7, Satyam’s Ramalinga Raju sent a 1,069-word confession saying he doctored the accounts of his company by inflating the assets, mostly cash and bank balances.
The amount involved: Rs 7,136 crore, including accrued interest on non-existent bank deposits.
On February 29, 2008, P Chidambaram, then finance minister, also admitted to doctoring the numbers of the country’s books — but in fewer words.
He said: “I acknowledge that significant liabilities of the government on account of oil, food and fertiliser bonds are currently below the line….Our fiscal and revenue deficits are understated to that extent…”
Shorn of gobbledygook, Chidambaram was saying something similar to Raju.
While Raju cooked his books by overstating revenues, Chidambaram was understating his costs (subsidies on oil, fertiliser, and food) to fool the world.
Put another way, he was saying that his fiscal deficit — the difference between government revenues and expenditure, which has to be met by borrowings — was a piece of fiction. The size of Chidambaram’s misstatement of government liabilities is estimated to be at least Rs 1,50,000 crore. And that’s just this year.
The reason why Raju is in jail while Chidambaram is talking of sending other people to jail (mostly terrorists, since he is now the home minister) is simple. No matter how badly he runs his finances, he has the ultimate bailout at hand: a currency note printing press. Raju cannot plug the hole in his accounts by printing money. Chidambaram can.
Why should finance ministers be allowed to give bogus figures to the nation when Raju can’t do the same for his shareholders? How is Raju’s fudge any worse than that of the finance minister of India? Were Chidambaram’s books any better produced than those dished out by Raju and his CFO Srinivas Vadlamani?
Take a look at what Raju claimed in his confessional. He said he had overstated profits. You can overstate profits by either creating make-believe revenues or by understating costs. Raju did the former. Chidambaram did the latter.
Here’s how it works. When the finance minister presents his budget, he makes guesses about revenues and expenditure —- the difference being the fiscal deficit, which is the corporate equivalent of a loss (the profit equivalent would be a budget surplus).
By refusing to recognise several costs (the farm loan waiver, and the oil subsidies, among others), the finance minister fooled us. When he presented the 2008-09 budget, he said the fiscal deficit would be 2.5% of gross domestic product (GDP). We now know it could be over 5%, and it’s not because of the recession.
Now let’s look at motivation, and examine whether the finance minister had nobler reasons for his fudge. If Raju was trying to impress investors and/or siphon money for personal enrichment, the finance minister was trying to tell the world he was balancing his books well even while buying votes.
But he was buying votes without paying for it (farm loan waivers, oil price subsidies, et al). It’s not very different from Raju keeping share prices high without earning it.
We can sometimes assign a nobler purpose to government spending - after all they are elected to serve the poor —- but not always. When oil costs $130-150 a barrel (which is what it cost around mid-2008), are you doing the country a service by forcing oil companies to sell it for the equivalent of $60? He made ordinary people over-consume a precious commodity by artificially pricing it low. In other words, he was indulging in activities detrimental to the country’s long-term interests. When we don’t produce that much oil, should we be pricing it low or high? We were not even pricing it at cost. And all this to let the finance minister claim a better budget balance!
Now let’s consider plain robbery. We presume Raju used a part of Satyam’s cash for his own purposes. In short, he used money that belonged to shareholders.
Chidambaram did no less. How did he make his budget look better than it was? The example of public sector oil companies is clear. By forcikng them to price oil below cost, he pushed them into losses. And don’t forget, the oil companies don’t belong to him: they belong to you, me and other investors and taxpayers.
Between April, 2003, and January, 2008, when the Bombay Stock Exchange Sensex soared 620%, the market value of oil companies rose 466%. That figure looks good only because the ONGC made big money. Else the figure falls to 235%. If the prices of
India’s public sector oil companies had risen at least as much as the Sensex (they should have risen more, since oil prices were zooming), their collective market value should have been at least Rs 1,30,000 crore more that what it was. That’s the amount the finance minister has looted from investors.
The big question: how are India’s finance ministers different from the Rajus of the world?
The amount involved: Rs 7,136 crore, including accrued interest on non-existent bank deposits.
On February 29, 2008, P Chidambaram, then finance minister, also admitted to doctoring the numbers of the country’s books — but in fewer words.
He said: “I acknowledge that significant liabilities of the government on account of oil, food and fertiliser bonds are currently below the line….Our fiscal and revenue deficits are understated to that extent…”
Shorn of gobbledygook, Chidambaram was saying something similar to Raju.
While Raju cooked his books by overstating revenues, Chidambaram was understating his costs (subsidies on oil, fertiliser, and food) to fool the world.
Put another way, he was saying that his fiscal deficit — the difference between government revenues and expenditure, which has to be met by borrowings — was a piece of fiction. The size of Chidambaram’s misstatement of government liabilities is estimated to be at least Rs 1,50,000 crore. And that’s just this year.
The reason why Raju is in jail while Chidambaram is talking of sending other people to jail (mostly terrorists, since he is now the home minister) is simple. No matter how badly he runs his finances, he has the ultimate bailout at hand: a currency note printing press. Raju cannot plug the hole in his accounts by printing money. Chidambaram can.
Why should finance ministers be allowed to give bogus figures to the nation when Raju can’t do the same for his shareholders? How is Raju’s fudge any worse than that of the finance minister of India? Were Chidambaram’s books any better produced than those dished out by Raju and his CFO Srinivas Vadlamani?
Take a look at what Raju claimed in his confessional. He said he had overstated profits. You can overstate profits by either creating make-believe revenues or by understating costs. Raju did the former. Chidambaram did the latter.
Here’s how it works. When the finance minister presents his budget, he makes guesses about revenues and expenditure —- the difference being the fiscal deficit, which is the corporate equivalent of a loss (the profit equivalent would be a budget surplus).
By refusing to recognise several costs (the farm loan waiver, and the oil subsidies, among others), the finance minister fooled us. When he presented the 2008-09 budget, he said the fiscal deficit would be 2.5% of gross domestic product (GDP). We now know it could be over 5%, and it’s not because of the recession.
Now let’s look at motivation, and examine whether the finance minister had nobler reasons for his fudge. If Raju was trying to impress investors and/or siphon money for personal enrichment, the finance minister was trying to tell the world he was balancing his books well even while buying votes.
But he was buying votes without paying for it (farm loan waivers, oil price subsidies, et al). It’s not very different from Raju keeping share prices high without earning it.
We can sometimes assign a nobler purpose to government spending - after all they are elected to serve the poor —- but not always. When oil costs $130-150 a barrel (which is what it cost around mid-2008), are you doing the country a service by forcing oil companies to sell it for the equivalent of $60? He made ordinary people over-consume a precious commodity by artificially pricing it low. In other words, he was indulging in activities detrimental to the country’s long-term interests. When we don’t produce that much oil, should we be pricing it low or high? We were not even pricing it at cost. And all this to let the finance minister claim a better budget balance!
Now let’s consider plain robbery. We presume Raju used a part of Satyam’s cash for his own purposes. In short, he used money that belonged to shareholders.
Chidambaram did no less. How did he make his budget look better than it was? The example of public sector oil companies is clear. By forcikng them to price oil below cost, he pushed them into losses. And don’t forget, the oil companies don’t belong to him: they belong to you, me and other investors and taxpayers.
Between April, 2003, and January, 2008, when the Bombay Stock Exchange Sensex soared 620%, the market value of oil companies rose 466%. That figure looks good only because the ONGC made big money. Else the figure falls to 235%. If the prices of
India’s public sector oil companies had risen at least as much as the Sensex (they should have risen more, since oil prices were zooming), their collective market value should have been at least Rs 1,30,000 crore more that what it was. That’s the amount the finance minister has looted from investors.
The big question: how are India’s finance ministers different from the Rajus of the world?