Update: At the time of posting this blog, CNN-IBN broke the news that Govt of India is about to bail out Satyam Computers with Rs. 2000 Crores in three installments. Rs. 500 crores will be given to them each month for taking care of salaries and Rs. 400 crores as working capital injection. Govt is shying away to call it as a bail out, but in whatever terms they name it - - It remains a bail out.
Satyam Computer Services and other companies floated by B Ramalinga Raju family are in the news since December 2008; when the Satyam board 'unanimously' consented to acquire Maytas Properties and Maytas Infra at overstated valuations. What happened next is well documented by the Media.
The Net result is that the country's biggest corporate fraud; dubbed as India's own Enron; is threatening the credibility of Indian software outsourcing companies in particular and the Indian industry in general. The Government of India, SEBI and other regulatory and law enforcement bodies have swung into action to make sure that the beleaguered IT giant does not go under. There is too much at stake - the jobs of 53000 Satyam employees and their families, the ripple effect on other Indian IT companies that may result in more job losses, the fate of various infrastructure projects awarded to Maytas companies etc.
As a knee jerk reaction, the Commerce Minister Mr. Kamal Nath issued a statement that a government bail-out for Satyam is also being considered. But is it really prudent for the Govt of India to offer financial help to Satyam out of tax payer money?
I am totally against this idea of bailing out any organization which is going under due to acts of its own management or any other circumstances. One, it is against the principle of free trade. Second, it sets a very wrong and dangerous precedent of diverting government exchequer to sort out the mess created by few individuals with their acts of mismanagement and frauds. In plain terms, it sends out a clear signal to fraudsters that they can siphon off huge sums with a guarantee that Government will pay for them. The government cannot simply insure, indemnify and thereby encourage frauds and lack of corporate governance in organizations. This approach is totally illogical and unjustified be it in whichever part of the world.
Huge uproar was witnessed in the United States recently when the US Govt was mulling a huge bailout to the Banking and automobile sector. There was a deadlock in congress and senate and the original bail outs were actually rejected. Public dissent was also strong on the streets with a loud and clear message to the Bush Administration - Do not waste our money to help these behemoths who have gone broke due to their own greed and deeds. It is a different story that the Bush Administration could finally get the requisite support to approve the second version of that package. But, it should not be taken as guidance by other governments.
The money we pay in taxes is marked for running the day to day affairs of the country, building infrastructure, assuring health services, education, electricity and other basic needs for the entire population of our country. If we look at the state of all the above parameters, there is a dire need of allocation of more funds to be spent on improving all of these. The magnitude of population affected by lack of above facilities is way much bigger than the number of employees of Satyam and their family members. The funds have to be correctly channelized to these sectors to assure basic quality of life to the common masses. It is not only imprudent but also grossly criminal on the part of govt to pour this money into a mismanaged, fraud-stricken private company. Criminal - because the govt is in essence helping the criminals to get away with the siphoned off money or the inflated profit figures. This is as relevant today with Satyam as it was with UTI fiasco in 2001, Securities scam and Stamp paper scam.
Instead, the government should focus on ascertaining whether the Satyam books were simply inflated with non-existent cash or the cash was actually channeled to the Raju family. If the later is true then the govt's job is to ensure recovery of that money and awarding harsh punishment to the culprits. That would serve as a deterrent to the future fraudsters. A bail out will serve exactly the opposite purpose.
If we get into habit of 'helping' failing corporate bodies in the interest of saving a few jobs, then the question is how many more times are we going to do this? Shall we bail out failing cooperative banks, loss making airlines, recession hit export sector? If someone floats a sham company to collect money from general public and then does a vanishing act - is the govt going to create a real company with the same name and inject liquidity into it? The common man stands to lose two times - once by investing in these companies and twice to save his own investment by his own taxes!! This should never be allowed to happen.
As far as the 53000 families are concerned, the fact is that they were highly paid for so long as everyone else in the IT sector. They should be having enough money to sustain joblessness for at least a couple of months. If they sense they might be laid off, then they should immediately start looking for other jobs with openness to join tier-II or tier-III companies at lesser salaries. They can get into better jobs once the market recovers. I am equally concerned for them but I am also concerned about the huge jobless population of India. Do we lose our sleep every night thinking about them? Do we pay through our nose to bail them out, to create jobs for them? They are many times more in numbers than 53000.
The Net result is that the country's biggest corporate fraud; dubbed as India's own Enron; is threatening the credibility of Indian software outsourcing companies in particular and the Indian industry in general. The Government of India, SEBI and other regulatory and law enforcement bodies have swung into action to make sure that the beleaguered IT giant does not go under. There is too much at stake - the jobs of 53000 Satyam employees and their families, the ripple effect on other Indian IT companies that may result in more job losses, the fate of various infrastructure projects awarded to Maytas companies etc.
As a knee jerk reaction, the Commerce Minister Mr. Kamal Nath issued a statement that a government bail-out for Satyam is also being considered. But is it really prudent for the Govt of India to offer financial help to Satyam out of tax payer money?
I am totally against this idea of bailing out any organization which is going under due to acts of its own management or any other circumstances. One, it is against the principle of free trade. Second, it sets a very wrong and dangerous precedent of diverting government exchequer to sort out the mess created by few individuals with their acts of mismanagement and frauds. In plain terms, it sends out a clear signal to fraudsters that they can siphon off huge sums with a guarantee that Government will pay for them. The government cannot simply insure, indemnify and thereby encourage frauds and lack of corporate governance in organizations. This approach is totally illogical and unjustified be it in whichever part of the world.
Huge uproar was witnessed in the United States recently when the US Govt was mulling a huge bailout to the Banking and automobile sector. There was a deadlock in congress and senate and the original bail outs were actually rejected. Public dissent was also strong on the streets with a loud and clear message to the Bush Administration - Do not waste our money to help these behemoths who have gone broke due to their own greed and deeds. It is a different story that the Bush Administration could finally get the requisite support to approve the second version of that package. But, it should not be taken as guidance by other governments.
The money we pay in taxes is marked for running the day to day affairs of the country, building infrastructure, assuring health services, education, electricity and other basic needs for the entire population of our country. If we look at the state of all the above parameters, there is a dire need of allocation of more funds to be spent on improving all of these. The magnitude of population affected by lack of above facilities is way much bigger than the number of employees of Satyam and their family members. The funds have to be correctly channelized to these sectors to assure basic quality of life to the common masses. It is not only imprudent but also grossly criminal on the part of govt to pour this money into a mismanaged, fraud-stricken private company. Criminal - because the govt is in essence helping the criminals to get away with the siphoned off money or the inflated profit figures. This is as relevant today with Satyam as it was with UTI fiasco in 2001, Securities scam and Stamp paper scam.
Instead, the government should focus on ascertaining whether the Satyam books were simply inflated with non-existent cash or the cash was actually channeled to the Raju family. If the later is true then the govt's job is to ensure recovery of that money and awarding harsh punishment to the culprits. That would serve as a deterrent to the future fraudsters. A bail out will serve exactly the opposite purpose.
If we get into habit of 'helping' failing corporate bodies in the interest of saving a few jobs, then the question is how many more times are we going to do this? Shall we bail out failing cooperative banks, loss making airlines, recession hit export sector? If someone floats a sham company to collect money from general public and then does a vanishing act - is the govt going to create a real company with the same name and inject liquidity into it? The common man stands to lose two times - once by investing in these companies and twice to save his own investment by his own taxes!! This should never be allowed to happen.
As far as the 53000 families are concerned, the fact is that they were highly paid for so long as everyone else in the IT sector. They should be having enough money to sustain joblessness for at least a couple of months. If they sense they might be laid off, then they should immediately start looking for other jobs with openness to join tier-II or tier-III companies at lesser salaries. They can get into better jobs once the market recovers. I am equally concerned for them but I am also concerned about the huge jobless population of India. Do we lose our sleep every night thinking about them? Do we pay through our nose to bail them out, to create jobs for them? They are many times more in numbers than 53000.
Finally, the last and basic question is - Why should I pay for Mr. Raju's or any other individual/corporate misdeeds?
6 comments:
I am agreeing to this Govt's move some extent because
1.)This issue has now became the Govt's issue as it allowed to flourish this company for several years by gettig satisfied with the corporate taxes and profit taxes by until now by overlooking the corporate fundamentals.....
2.)Now entire focus is on this issue by investors around the world and they are cautiously waiting for Govt's move.....
3.)Govt is funding as insuffient cash liqudity will make the business impact for the company clients which makes them not to outsource to india anymore resulting in the Govt again facing the music...
4.)Most probably Govt has to do this after ensuring that bailout amount will be recovered from company's business in shortest possible time...
5.)Until now from 1987<--->2008 company employees might have paid taxes of approximately well more than 10000 crores apart from improving the cash flow inside the country.....
6.)Govt is not going forbailing out a company that has been bankrupt(where nothing left along with insufficient cash liquidity) but a company that has been performing well until now with huge assets attached with that...
i think the govt is more involved than we think, which might be one of the reasons for the bial out.
There is news of some land deals done by maytas on the behest of political forces :)
Santhosh - Agree with points 4, 5, and 6 mentioned by you. If the govt wants to bail it out then it has to ensure that the money is recovered in some way along with Interest.
Agreed
but Ambi, my point is , why should I pay for these people? Its my hard earned money afterall. I f govt really wanna help it should take money from poliyicians pocets first....coz they summed up a lot money from this racket after alll, may be dirrectly or indirectly
but Ambi, my point is , why should I pay for these people? Its my hard earned money afterall. I f govt really wanna help it should take money from poliyicians pocets first....coz they summed up a lot money from this racket after alll, may be dirrectly or indirectly
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