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Pranabalinga Raju? FM's books are no better than Satyam's
On 7 January 2009, B Ramalinga Raju sent a doleful message to the stock exchanges that he had fiddled with the company's accounts by inflating assets – mostly non-existent cash and bank deposits, and overstated debtors. The hera-pheri added up to more than Rs 7,136 crore at that time.
Said Raju: "The gap in the balance-sheet has arisen purely on account of inflated profits over a period of last several years"¦. It was like riding a tiger, not knowing how to get off without being eaten."
On 29 February 2008, a year before Raju's confessional, the then Finance Minister P Chidambaram said a mea culpa to shareholders of India Inc while presenting his budget. 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"¦"
Unlike Raju, Chidambaram did not dismount the tiger even after making that speech. Oil bonds continued to be issued, the budget continued to fail to reflect the true state of government finances and its liabilities to oil companies.
His successor and bete noire Pranab Mukherjee made a stirring promise to clean up the books and even patted himself on the back for keeping it – for all of one year. This is what he said in his budget speech this year. "In my last budget, I had stated that the government would avoid issuing bonds in lieu of subsidies to oil and fertiliser companies. I have adhered to this decision, thereby bringing all subsidy related liabilities into our fiscal accounting."
It was a political fib. He said this despite knowing that the 2011-12 budget provision of Rs 20,000 crore for oil subsidies was over even before the year had begun. It was used to pay the previous year's subsidy bill to the oil marketing companies.
Why do finance ministers make promises they know will never be kept? Almost every major number mentioned in the budget – GDP growth, inflation, subsidies, outlays – have gone for a toss. On Thursday (29 Sept), Mukherjee's ministry announced that it has got one more budget figure wildly wrong – it now wants to borrow Rs 52,872 crore more than the Rs 4,12,817 crore the budget had provided for.
If finance ministers diddle their books, all they have to do is ask the Reserve Bank to print more money. Reuters
A finance minister's budget is the balance-sheet of the nation. His revenues are the corporate equivalent of topline (sales revenues), his budget deficit is the same as a company's bottomline (a budget deficit is a loss, any surplus a profit). His projections for the year ahead are like corporate results guidance – an indication provided by management about revenue and cost visibility. If you get the numbers horribly out of whack, the markets will clobber your share.
But finance ministers get away with murder — despite fudging figures, presenting wildly optimistic scenarios, and paying no price whatsoever for their misdemeanours.
Now let's see why we have put Ramalinga Raju in jail when Pranab Mukherjee is guilty of similar legerdemain in his budget. And this goes for his predecessor as well.
While Raju fooled his shareholders by overstating revenues, Mukherjee has pulled wool over Indian citizens' eyes by both overestimating revenues and understating costs. A double-fudge.
For example, his budget had pencilled in a tax revenue growth of 17-18 percent. As on 15 September, his direct taxes had grown by all of 6.7 percent. His fiscal deficit target (budget gap before borrowing) was 4.6 percent of GDP. As in June 2011, it was already 7.8 percent.
As for costs, one figure will suffice. He had put in Rs 20,000 crore for oil subsidies. That money was used to pay up 2010-11's overdues, and oil sector subsidy bills are expected to add up to another Rs 1,20,000 crore. These are Mukherjee's budget costs, but they are nowhere shown on budget documents. And there's still half a year to go – and possibly a Food Security Bill to be bank-rolled.
In short, Mukherjee has both overstated revenues and understated costs.
Raju's book falsification amounted to Rs 7,000-and-odd crore. Mukherjee's will run into over Rs 1,50,000 crore this year after accounting for unprovided for oil subsidies — which is why he is raising his borrowing targets now.
So why is Raju in jail and Pranab da in North Block?
Answer: Corporate chieftains have to finally tell shareholders the truth. If they have fudged, they go to jail. If finance ministers diddle their books, all they have to do is ask the Reserve Bank to print more money.
Reserve Bank Governor Duvvuri Subbarao is not amused that he has to print more money to hide Mukherjee's bad budget math, but he has no option. Mukherjee is his boss. The only way he can get back at him is by pushing up interest rates – and get painted by all as villain, when it's his boss who's the culprit. As inflation soars, Subbarao gets brickbats. Meanwhile, Mukherjee not only cooks his books, but also gives his citizen-shareholders debased money post-inflation.
Of course, Mukherjee and the UPA government will claim that they are not in the same game as Raju – they are driven by noble purposes like removing poverty while Raju was trying to enrich himself.
Anyone who has been following the developments in the 2G spectrum and Commonwealth scams will have no such illusions, but, even in the broader sense, Mukherjee's motivations are not any purer than Raju's.
By fiddling with figures, Raju was trying to keep his share prices high and please shareholders. By fiddling his figures – claiming revenues that aren't there and understating costs – Mukherjee is trying to keep petro-prices below cost for his shareholders and buy votes. He is cheating on his books to woo his shareholders at the expense of taxpayers.
If you are still not convinced, consider this. Raju robbed his company for personal ends. But is Mukherjee not doing the same? He is looting the public sector oil companies to pay for his oil subsidies. Between 2008-11, ONGC, Oil India and Gail were forced to pay the oil marketing companies Rs 30,297 crore as discounts and subsidies. Mukherjee unilaterally took money that belonged to investors (including taxpayers who own parts of these companies) to woo his electorate with low oil prices.
Accounting fudge, misuse of public funds and outright loot of public sector profits are not small crimes.
So why is Pranab Mukherjee a saint and Raju a sinner?
On 7 January 2009, B Ramalinga Raju sent a doleful message to the stock exchanges that he had fiddled with the company's accounts by inflating assets – mostly non-existent cash and bank deposits, and overstated debtors. The hera-pheri added up to more than Rs 7,136 crore at that time.
Said Raju: "The gap in the balance-sheet has arisen purely on account of inflated profits over a period of last several years"¦. It was like riding a tiger, not knowing how to get off without being eaten."
On 29 February 2008, a year before Raju's confessional, the then Finance Minister P Chidambaram said a mea culpa to shareholders of India Inc while presenting his budget. 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"¦"
Unlike Raju, Chidambaram did not dismount the tiger even after making that speech. Oil bonds continued to be issued, the budget continued to fail to reflect the true state of government finances and its liabilities to oil companies.
His successor and bete noire Pranab Mukherjee made a stirring promise to clean up the books and even patted himself on the back for keeping it – for all of one year. This is what he said in his budget speech this year. "In my last budget, I had stated that the government would avoid issuing bonds in lieu of subsidies to oil and fertiliser companies. I have adhered to this decision, thereby bringing all subsidy related liabilities into our fiscal accounting."
It was a political fib. He said this despite knowing that the 2011-12 budget provision of Rs 20,000 crore for oil subsidies was over even before the year had begun. It was used to pay the previous year's subsidy bill to the oil marketing companies.
Why do finance ministers make promises they know will never be kept? Almost every major number mentioned in the budget – GDP growth, inflation, subsidies, outlays – have gone for a toss. On Thursday (29 Sept), Mukherjee's ministry announced that it has got one more budget figure wildly wrong – it now wants to borrow Rs 52,872 crore more than the Rs 4,12,817 crore the budget had provided for.
If finance ministers diddle their books, all they have to do is ask the Reserve Bank to print more money. Reuters
A finance minister's budget is the balance-sheet of the nation. His revenues are the corporate equivalent of topline (sales revenues), his budget deficit is the same as a company's bottomline (a budget deficit is a loss, any surplus a profit). His projections for the year ahead are like corporate results guidance – an indication provided by management about revenue and cost visibility. If you get the numbers horribly out of whack, the markets will clobber your share.
But finance ministers get away with murder — despite fudging figures, presenting wildly optimistic scenarios, and paying no price whatsoever for their misdemeanours.
Now let's see why we have put Ramalinga Raju in jail when Pranab Mukherjee is guilty of similar legerdemain in his budget. And this goes for his predecessor as well.
While Raju fooled his shareholders by overstating revenues, Mukherjee has pulled wool over Indian citizens' eyes by both overestimating revenues and understating costs. A double-fudge.
For example, his budget had pencilled in a tax revenue growth of 17-18 percent. As on 15 September, his direct taxes had grown by all of 6.7 percent. His fiscal deficit target (budget gap before borrowing) was 4.6 percent of GDP. As in June 2011, it was already 7.8 percent.
As for costs, one figure will suffice. He had put in Rs 20,000 crore for oil subsidies. That money was used to pay up 2010-11's overdues, and oil sector subsidy bills are expected to add up to another Rs 1,20,000 crore. These are Mukherjee's budget costs, but they are nowhere shown on budget documents. And there's still half a year to go – and possibly a Food Security Bill to be bank-rolled.
In short, Mukherjee has both overstated revenues and understated costs.
Raju's book falsification amounted to Rs 7,000-and-odd crore. Mukherjee's will run into over Rs 1,50,000 crore this year after accounting for unprovided for oil subsidies — which is why he is raising his borrowing targets now.
So why is Raju in jail and Pranab da in North Block?
Answer: Corporate chieftains have to finally tell shareholders the truth. If they have fudged, they go to jail. If finance ministers diddle their books, all they have to do is ask the Reserve Bank to print more money.
Reserve Bank Governor Duvvuri Subbarao is not amused that he has to print more money to hide Mukherjee's bad budget math, but he has no option. Mukherjee is his boss. The only way he can get back at him is by pushing up interest rates – and get painted by all as villain, when it's his boss who's the culprit. As inflation soars, Subbarao gets brickbats. Meanwhile, Mukherjee not only cooks his books, but also gives his citizen-shareholders debased money post-inflation.
Of course, Mukherjee and the UPA government will claim that they are not in the same game as Raju – they are driven by noble purposes like removing poverty while Raju was trying to enrich himself.
Anyone who has been following the developments in the 2G spectrum and Commonwealth scams will have no such illusions, but, even in the broader sense, Mukherjee's motivations are not any purer than Raju's.
By fiddling with figures, Raju was trying to keep his share prices high and please shareholders. By fiddling his figures – claiming revenues that aren't there and understating costs – Mukherjee is trying to keep petro-prices below cost for his shareholders and buy votes. He is cheating on his books to woo his shareholders at the expense of taxpayers.
If you are still not convinced, consider this. Raju robbed his company for personal ends. But is Mukherjee not doing the same? He is looting the public sector oil companies to pay for his oil subsidies. Between 2008-11, ONGC, Oil India and Gail were forced to pay the oil marketing companies Rs 30,297 crore as discounts and subsidies. Mukherjee unilaterally took money that belonged to investors (including taxpayers who own parts of these companies) to woo his electorate with low oil prices.
Accounting fudge, misuse of public funds and outright loot of public sector profits are not small crimes.
So why is Pranab Mukherjee a saint and Raju a sinner?
