The entire Indian IT industry is today trying to avoid its reputation being contaminated after a major firm’s chairman admitted faking company accounts. Ramalinga Raju admitted that almost all of the billion dollars of assets listed in a recent filing were fictitious.

In a resignation statement, Raju told the board of Satyam Computers that he had lied about revenues and profits for several years. The disparity grew greater over time, with profits for the quarter ending last September being just a tenth of those Raju had claimed.

He said his attempts to create genuine assets to plug the gap became increasingly desperate. When a bid to takeover another firm fell apart, the fraud’s uncovering became inevitable: Raju described his situation as being “like riding a tiger, not knowing how to get off without being eaten.”

Raju says he didn’t personally benefit from the fraudulent accounts, but that’s unlikely to protect him from legal consequences.

The news had an immediate effect on Indian stocks which suffered their biggest daily fall in more than two months. Analysts say that investors in all firms may now question the legitimacy of financial figures from all firms.

The scandal will be felt outside of India. Satyam provided technology and customer service facilities to firms such as General Electric, General Motors and even the US government.

There’s now concern that overseas clients may question the whole idea of outsourcing to India for fear either of being caught up in a scandal or of relying so heavily on firms which could face sudden financial problems. NASSCOM, the trade body of the Indian tech industry, was quick to stress that “This is a stand-alone case of failure of corporate governance and it is critical that it be viewed in this light… This is not in any manner a reflection on the industry or corporate India”

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Entry was posted on Wednesday, January 7th, 2009 at 1:03 pm under Legal, Technology.

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