How far should the govt go in rescuing Satyam?

A week after B. Ramalinga Raju made his famous confessions of committing a US$1.
Written by ZDNet Staff, Contributor

A week after B. Ramalinga Raju made his famous confessions of committing a US$1.5 billion accounting fraud, one thing is rather obvious--that the Indian government has never tried harder to salvage the India image. And rightly so.

This is not the first time a scam of this nature has been unraveled anywhere in the world. Satyam-like scams are probably as old as the hills. Back in the 1960s and '70s, the Equity Funding Corporation of America was embroiled in a massive accounting scam, much larger than the Satyam fraud. And the more recent Madoff scandal in the U.S. is being termed as one of the largest scams in the history of Wall Street.

But insofar as India is concerned, this is the first time that corporate India has seen a fraud of this magnitude. And that's why the government's prompt action comes as a refreshing change.

My guess is that a combination of factors may have compelled the Indian government to act speedily on the Satyam scam. First, frauds like these can severely tarnish the country's image and make foreign investment and outsourcing contracts even more difficult to come by. Two, the future of 53,000 Satyam employees, including those overseas, is at stake. Three, investors in the U.S. stand to lose as much as Satyam’s shareholders in India. Four, with elections around the corner, the ruling party couldn't afford to lose time in the case. And lastly (but most importantly), the world was looking at India and its ability to clean up a scam of this nature.

But how far can the government go in rescuing Satyam?

Till a few days back, there were news reports that the government was readying a US$410 million (INR 20 billion) bailout package for Satyam. The Congress-led government in Andhra Pradesh has (reportedly) been pestering the Central government to announce a bailout package for the IT company. But yesterday, Prime Minister Manmohan Singh made it clear that the taxpayer's money will not be used to rescue Satyam.

Perhaps the PM also needs to look into why the Andhra government is so insistent on a bailout package for Satyam. News reports say that the state has pledged close to US$6.1 billion (INR 30,000 crore) in various infrastructure projects that have been awarded to companies controlled by the Raju family (such as Maytas Infra). Why haven't the projects been taken away from Maytas? Perhaps there is another scam waiting to be unearthed there.

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