A majority of Indians believe that corporate fraud must involve embezzlement. In the case of the Satyam scandal, reporters seem convinced that Ramalinga Raju siphoned off company funds. The jury is still out on what actually happened, but I have a feeling Raju's confessional statement about overstating profits is broadly accurate.
The mindset of the public is a little behind the times. In the old days, the sly business practise was to play down profits, even pretend to be running at a loss if possible. High profits meant high taxes. Why pay the government when one could skim the cream by overstating expenses?
Things have changed in the new economy. Skim milk is costlier than full-cream. Wealth is determined not by the cash you have stashed but the current price of your holdings. Big profits drive up share values, and stocks can be sold with a minimal burden. Thanks to Mr. Chidambaram, long-term capital gains tax from the sale of equities is ZERO. You can make billions without parting with a paisa. Fictitious profits will earn you far more than fictitious costs.
That's how WorldCom did it, that's how Enron did it. Raju's stake in Satyam dropped from 25% to about 8% over the past half-dozen years. He made crores by selling shares whose value was inflated by his machinations. And he put the gains where any good Malthusian would: in land.
It's a typically Indian mix of the pre and post-industrial. Raju had seen exactly how funny money could be. During the tech bubble, he spent 4990 million rupees to buy a website called IndiaWorld, which had annual revenues of less than 10 million. The day after the purchase, on November 30, 1999, Satyam's shares rose by 30% in New York, adding 640 million dollars to the company's market cap, and more than 4990 million rupees to Raju's personal wealth. Much of that disappeared in the bust of 2000. No wonder he saw real security in land.