Outsourcing meets brick wall

Byrraju Ramalinga Raju's shock resignation on Wednesday as chairman of Satyam Computer Services, which he founded and helped develop into India's fourth-largest computer software firm, and confession to fraud running into millions of dollars has threatened to undermine the remarkable growth story of the Indian economy in general and its information technology sector in particular.

Raju, 53, confessed in a letter to Satyam's board of directors to inflating profits for years with "fictitious" assets and non-existent cash. The fraud, he said, began in an attempt to cover up a "marginal gap between actual operating profit and the one reflected in the book of accounts". It swelled over the years to "unmanageable proportions as the size of the company operations grew significantly". Raju said that about US$1.04 billion, or 94% of the cash listed in assets at the end of the company's second quarter in September, was fictitious. It simply didn't exist.

It does seem that as Satyam grew, so did the magnitude of the fraud it was perpetrating on shareholders, employees, indeed the world. It couldn't be more ironic. The name "Satyam" is derived from the Sanskrit word satya, which means "truth".

Headquartered in the southern city of Hyderabad, Satyam specializes in business software and offers back-office outsourcing and consulting services. Set up in 1987 with just 20 employees, it has grown to be one of the torchbearers of India's new economy, now operating in 66 countries and with 53,000 people on its payrolls.