EDITORIAL Deceit, Thy Name Is Capitalism THE mega loot that describes the Satyam scam has exposed

the systemic malaise of the new IT economy that had tended to dominate India’s recent economic liberalisation trajectory. The colossal financial swindle with cooked up account books, surprisingly undetected for so many years, is simply unbelievable. The eventual confession of its prime owner that the revenues and profits were vastly exaggerated in the account books, appears to mask a larger loot and swindle. The prime minister has asked the Serious Fraud Investigation Office (SFIO) to investigate the scandal and submit a report in three months. While this needs to be done, it should cover all aspects of the swindle and not confine itself only to the cooked up accounts. Satyam owner, Ramlinga Raju, has confessed that while the ratio of operating margins to revenues was just under 3 per cent, they were shown as 24 per cent in the accounts – a swindle of over Rs 7000 crore. Elsewhere in this issue, the murky details are discussed and, hence, these are not repeated here. However, it needs to be noted the false exaggeration of the health of the company and its profit margins contributed over the years in keeping the share prices of Satyam high on the stock market. Thus, by orchestrating a false high price, the sale of shares would have raked in undue super profits. By selling shares when the prices are high, the profits could be used to acquire real assets elsewhere. The more inflated the share values, the more such assets could be acquired. Between 2001 and September 2008 (precisely the years of accounting fraud), the share of the stake held by the Raju family in Satyam fell from 25.6 per cent of equity in the company to 8.65. This further fell to 5.13 per cent in January 2009 before Raju confessed his crime. This needs to be probed. Were the profits raked in by these sales used to acquire assets by the eight other Raju family companies, including Maytas Properties and Maytas Infra? Apart from probing the role of the company’s auditor, Price Waterhouse Coopers (who was also the auditor for the Global Trust Bank [GTB] that was involved in an earlier mega scam and had to be amalgamated with a

nationalised bank), the SFIO probe must cover all angles of how public money was siphoned off by the family to acquire huge real assets. In addition, the largesse shown by the Congress state government of Andhra Pradesh in allotting public lands to the companies belonging to the Raju family must also be probed. Naturally, there is a widespread concern regarding the welfare and future of the 53,000 odd employees of Satyam. There are reports of bailout packages being considered by the government to ensure that the employees will continue to get their salaries. While this needs to be done, it cannot, however, be done at public expense by using the tax payers’ money. As the accompanying table shows, the three companies of the Raju family, under scanner, have humongous real estate assets. These must be confiscated and converted into cash assets from which the employees’ welfare must be safeguarded. If the ethical norms of corporate governance are to be adhered to, then such a colossal fraud and loot must be made to pay. Particularly so, in the case of Satyam which on two occasions (in 2002 and in 2008) bagged the prestigious “Golden Peacock Award” for corporate governance given by the World Council of Corporate Governance. In itself another mega fraud! An accompanying article in this issue exposes how the global system of crony corporate capitalism is an accomplice in institutionalising such a global fraud. In the past, following every mega scam – Harshad Mehta's, UTI scam, Khetan Parekh's, GTB etc – the government stepped in with a bailout package in the name of protecting the common investor whose assets were wiped out by the loot. There is seldom any information on what happened to the ill-gotten wealth acquired through such scams. In this case, the government must not use the tax payers’ money for a bailout. If the nationalised banks are asked to forward liquidity in lieu of a bailout, then this must be accompanied by these banks acquiring a corresponding stake in the company. In any case, confiscation of the assets of the company and using them to safeguard the welfare of the employees and paying compensation to the victims of this colossal loot is the best course available. Finally, it is high time that the prime minister and his cronies in the Planning Commission live up to their, so far hollow rhetoric, of not wishing to


legitimise, leave alone permit, crony capitalism. This entire episode, once again, reconfirms the saying : `Deceit, thy name is capitalism’.

Land that was allotted by the Andhra Pradesh government Company Satyam Place Bahadurpally, Ranga Reddy Hitec city, Madhapur Thotlakonda Vizag Kapuluppada Gopanpally, Ranga Reddy Gundla Pochampalli, Ranga Reddy Bachupally, Ranga Reddy Hyderabad Metro Rail stations, depots Machilipatnam Port project Land allotted 10.5 hectares 12 hectares 20 hectares 6.7 acres 50 acres 15.96 hectares 14.15 hectares 29.9 hectares 269 acres Initially given 412 acres Allotted 2,172 acres 17,408.53 acres

Maytas Properties

Maytas Infra



Sign up to vote on this title
UsefulNot useful