Govt, not India Inc, is biggest failure on corporate governance

Talk about corporate governance scandals - this one is a whopper. Other corporate governance scandals in India pale in comparison to this one, even the $1.4 billion (Rs 7,000 crore) Satyam scandal, the biggest corporate fraud in India so far.

Who’s the guilty party we’re talking about? None other than the government of India.

The government was already coming under criticism from some quarters for planning some questionable ‘money transfers’ via state-owned entities; now it seems it can’t even be trusted on providing reliable economic data. While it’s not exactly a fraud, the casual attitude displayed by the government when providing information to the public is certainly a scandal.

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Late last week, Commerce Secretary Rahul Khullar announced that exports were overstated by about $9.4 billion during April-October this year because of a system crash in the commerce ministry and mistakes in data classification and entry.

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The most galling part is how casually the government is dismissing such a big goof-up as a “mistake”. As Firstpost noted in a recent article , would the government’s enforcement directorate or income tax officials let companies off the hook if they had said a computer error had caused them to overstate/understate revenues and therefore, not paid crores in duty as a result?

“There is no reason why the government should not be held equally accountable for this lapse because this will have serious implications for believability of Indian economic data,” it said.

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As it is, the Index of Industrial Production has also become somewhat of a joke among economists, with most of them refusing to take the numbers too seriously because of the way it has streaked up and down over the past few months. (The government has now decided to end a contract with the Centre for Monitoring Indian Economy for collecting data used in calculating the IIP, according to Mint.)

These troubles come on top of earlier media reports that said the governmentmight prod Life Insurance Corporation of India (a state-run entity) to buy 5-10 percent of the government’s stake in public-sector undertakings (also majority-owned by the government) as part of an exercise to raise Rs 40,000 crore through disinvestment.

Basically, that’s likegiving from the left hand and taking with the right hand.An even more interesting twist is that the government is considering asking PSUs to launch share buybacks, under which the government will sell some portion of its shares back to the PSU. Another left hand-right hand exercise.

Clearly, the government, as promoter of these companies, is trying to move money from one account to another to make its final balance sheet look good.

It’s not the only one trying to play dodgy financial games; in thepast six months, at least five relatively well-known companies have hit the limelight repeatedly for poor governance practices.

Fortis Healthcare: In September, the company announced that it was buying the overseas healthcare business of its promoters, Malvinder and Shivinder Singh, for $665 million. The big concern here, according to a report in The Economic Times today_,_ revolves around whether the deal was overvalued and whether the deal basically benefits the promoters, who fully own the international entity.

Maruti Suzuki: The rather sneaky way in which it paid off the union leaders of protesting employees and let The Economic Times announce the fact to the world is also not behaviour becoming of a reputed company like Maruti. Some institutional investors were upset at the way the whole affair was handled - and how nothing was communicated to investors.

Crompton Greaves: The company bought an aircraft for about Rs 270 crore during the 12 months to March 2011, which had institutional shareholders fuming because the purchase had been made at a time when the company’s profits were under pressure. Earlier, the company had also come under the scanner after non-executive vice-chairman SM Trehan sold his entire shareholding within a month after stepping down as managing director.

Everonn Education: The company hit the headlines late August after the Central Bureau of Investigation arrested managing director P Kishore on charges of bribing an income-tax official to suppress unreported income.

**SKS Microfinance:**From the shocking manner in which the CEO was fired just two months after the company listed on the stock exchange (and nothing was communicated to shareholders) to the way the company changed its business model to a profit-making venture from being a non-governmental organisation, everything was a disaster. The ouster of founder Vikram Akula late last month was the culmination of seething investor and management discontent.

But, to be honest, if the government can’t be serious about corporate governance, how can we expect Corporate India to be?