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Tuesday, January 13, 2009

Satyam Bailout? Killing The Truth

The Satyam fraud seems to have come at a real bad time. The economic scene in India was taking a turn for the worse, despite the Government telling everyone that the Indian economy was fairly insulated. Two stimulus packages and three rate cuts later, the Government was still going on about the insulated economy when Ramalinga Raju decided to wake up the Government.

Shaken up, the Government is, at the moment, what with the general elections staring down on them. Add to that the state assembly elections in Andhra pradesh, where Satyam is based, their woes have been compounded.

Initially there were a lot of bold statements from the ministers about Satyam being a corporate matter and not having to do anything with the Political governance, now murmurs have started about a potential bailout package by the centre. Does Satyam really merit a bailout? Or will it be just an exercise in killing the truth?

The politicians of this country have as usual confused the term bailout. Bailout is the act of offering, loaning or giving capital to a failing business in order to save it from bankruptcy, insolvency, or total liquidation. Bailout by a Government in power is normally given to a company to prevent greater, socioeconomic failures which might directly or indirectly affect the welfare or the security of the country.
In most cases the bailout is offered or contemplated in view of failing markets which lead directly to losses to the companies to such an extent that survivability of the company is threatened. It is neither advocated nor contemplated as a result of fraud or malpractices which lead to failure of a company.

Satyam was a fraud as admitted by none other than the CEO of the company as well as the higher management of the company. Let us see who all are affected by it's failure. First the investors. In my opinion trading in shares and stock is akin to gambling. People loose money over gambling everyday, there are so many lottery schemes sponsored by the state where people invest their hard earned money and loose it. Should we be bothereed about such people and their losses? Similarly there are so many casinos and illegal 'Satta' schemes, horse racing and betting syndicates flourishing. People loose money here too. Should we be bothereed about such people and their losses? The investors of Satyam, retail as well as the institutional ones, indulged in gambling, they lost their money to fraud. Should we really be bothereed about them, especially since there are so many other market players who loose money everyday trading shares. No Sir, we shouldn't be bothered about them. They don't split their profits with the Government and more importantly the taxpayers of the country. Then why should the Government even consider using the taxpayers money on reviving a company which reeks of corruption, malpractices and is a victim of high level fraud. Unless, of course, our politicians and bureaucrats have a stake in it.

Next comes the question of the employees. Satyam has about 53,000 employees globally. I would say the figure is trivial considering that the general unemployment rate in India hovers close to 10%. In any case, due to the tough economic scenario, even if the company had not failed as badly, the first step Mr Raju, the CEO would have taken was to downsize by cutting employees. Would the Government have bothered about the employees in that case. Even though no major incidents of large scale firing have been reported, fact is that Pink slips are being handed out by various companies on a regular basis. Why is the Government not bothered about that.

National Security, don't even talk about it. Satyam was and is never going to be a threat or otherwise be of any help as far as the matter of National Security is concerned.

Next is welfare and the socio economic affects. As I said earlier 53,000 is not a large number and will be easily absorbed by the other biggies, like Wipro, Infosys, L&T etc. Most of the work Satyam was doing was for foreign companies. That work also will be gladly taken over by the other companies and that indeed will be a better way of restoring customer confidence than trying to rebuild a failed organisation. In any case, in the larger perspective the customers will keep coming to India for the primary reason of low costs. It was definitely not the quality standards which was the drawing power of Satyam. Hell, Satyam is not even the biggest outsourcing company in India. Why are we concerned?

In my opinion, Satyam should be allowed to take it's downward spiral to a logical conclusion and the government should not be even thinking of a bailout. It is the hard earned money of innocent and honest taxpayers which is at stake here. The bankers and the other companies know much more about Satyam and the way they conducted business. If these people are not in favour of taking over or investing any further in the company, the government has no business to use the taxpayers money in a gamble which may just fall flat on it's face.

Bailouts have a downside also. It might just become a precedence and an incentive for other companies to lower their business standards since the risk capacity of the company will go up in the light of enhanced security nets created by the option or the knowledge of a bailout. It will also get more of a Governmental control in the corporate sector which, I am sure no one wants. Bailouts will also signal an era of forced tax collection, just like we have cesses and surcharges in each budget. I am sure no one wants that.

Let us say it once again. Satyam was a fraud perpetrated by unscrupulous, dishonest people with a criminal intent. Forget Bailout. Let Satyam Die, but keep the Truth alive.

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