?A week is a long time in politics?. said that famous cynic Harold Wilson. For ?Satyam? Raju, three weeks was eternity. His opening bid in mid-December for an amalgamation of the two Matyas companies (Shivam and Sundaram?) with Satyam was a bold and indeed foolhardy move. Like a murderer, who has escaped undetected but can?t keep away from the scene of his crime, he provoked detection. The market, which our intellectuals tell us does not work (hence we need regulators!), smelt a rat and dumped on him. He had to unravel his plot, and, from then on, the inevitable followed. Even so, few could have foreseen such a colossal fraud. Why did a man who was running a first rate company, which satisfied its many customers, need to cheat up to $2 billion?
The answer, I think, lies not in lapses of corporate governance but political corruption. The biggest danger right now is that this will be seen as solely a Satyam problem, and be dealt with technically, that is assuming that in Indian context anyone ever comes to judgment. After all, the murderers of 3,000 Sikhs are still swanning around Delhi 24 years later. The roots of the fraud lie ?I guess , since we don?t know?in the real estate and infrastructure Matyas firms. Real estate everywhere in India is embedded into corrupt politics. In Mumbai as in Hyderabad, local politicians take their bribes in real estate and in return give fat contracts. This is why Sreedharan, the Delhi Metro boss, smelt a rat about the Hyderabad Metro contract. He called the contract awarded to Matyas ?a land scam? .
But what with the financial meltdown and the fast approaching elections, (I guess again ) the politicians wanted cash, not land. Raju had to find money, and, lots of it and quick. Hence, the inflation of the company?s value, which then could be leveraged into cash borrowings against shares he had already pledged away to other lenders. But when caught red-handed, the house of cards collapsed. Marx called such sums fictitious capital. How else could you have the stock price fall to one-fifth of its value within three weeks? What is the worth of the intellectual and physical capital owned by Satyam? How can it fluctuate so wildly?
Of course, the same questions can be asked about Lehman Brothers and Merrill Lynch or Bear Stearns. But Satyam is a failure not just of corporate India but of political India as well. Notice how rapidly the chief minister of Andhra Pradesh gave Satyam a clean bill of health on January 1, and, how, by the 7th, he was scrambling around to arrange a cover-up before we find out where the dirt is buried. The country which was caught napping on 26/11 with all its elected leaders cowering behind their Z- plus plus security while their citizens were facing slaughter is the same country which will now sweep the Satyam scandal under the carpet.
No inquiry will report before the election of 2009 or even the one after that! Think Lieberhan. Sebi had already been found asleep when someone used its stationery to do an insider trading job. Who could now trust anything Sebi does, if it leaks like a sieve? No one took responsibility, and no one resigned. One cannot have effective regulation in a country with dysfunctional politics, which appoints people to sensitive jobs only after making sure they are not likely to embarrass their masters. What the scandal needs is a wide ranging inquiry, perhaps a judicial one chaired by a reliably independent person, preferably a foreigner, to delve into this murky pool.
I predict that no such inquiry will be initiated. Raju will be free for decades. Matyas companies will escape undetected.
That is par for the course and should not shock anyone. But I feel sorry for India Inc. For a while it looked like the Indian private sector would overcome the handicaps placed on it by the politicians it has to genuflect to. I even hoped that the business leaders would reform politics. It seems politics can corrupt any business faster than you can think. Even as recently as August 2008, India was touted as a success story, the next super power with a dynamic economy and vibrant democracy.
We all knew it was a bit of Davos dalliance. But now four months later, after the September terror attacks in Delhi and Malegaon, 26/11 and the sad and futile deaths of Karkare and his comrades and now Satyam, India is not shining. Will it ever again?
The author is a prominent economist and Labour peer