Policy responses to the Satyam scandal continue to be very positive, and it seems like the negative fallout will be minimized after all.
First, the government has moved swiftly to appoint a high-quality board of directors (yes, the one that oversaw – or failed to see – the fraud also had high profile people, but nowhere near as experienced and prominent in India as the new appointees). At the same time, they are moving to salvage the company. The government is signaling that it want insiders to be in charge, though there is also talk of bringing in Vivek Paul, the former Wipro number two. It is also identifying assets that can be mortgaged to keep the company afloat. This is as opposed to providing bailout money.
So it looks, like Satyam may survive, with brand new management and governance, and its liquidity situation repaired. The government is talking up the quality of the firm’s human assets and customer base, and its vote of confidence plus its actions look like they will go a long way to restore confidence all round. This is only one firm versus a whole sector, but the Indian government has come across as very decisive and proactive compared to the bumbling and hesitation that characterized the US government response to its financial sector crisis (where the executives who presided over the disaster are still in charge, and receiving bailout money without any seeming accountability).
Finally, one is seeing a very rapid and public discussion of improving regulation. Some aspects where enforcement is weak are being identified, while others where the regulations themselves could be strengthened are also being discussed. In particular, possibilities for improved disclosure requirements are being outlined. Encouragingly, the response is not a knee-jerk anti-business approach. It probably helped that Infosys, one of India’s best-managed companies, announced good results shortly after the Satyam scandal surfaced. Again, what one is reading in the news so far is more sensible than much of what was being written about appropriate policy responses to the US financial crisis. In fact, I recall the Wall Street Journal publishing several opinion pieces blaming it all on government interference, including its (indirect) mortgage programs and new regulations like Sarbanes Oxley. Instead, Indians are pointing out that Sarbanes Oxley-type regulations could have nipped the Satyam fraud in the bud.
In the bigger picture, the government is still projecting growth of 7-7.5 percent for 2008-09, which is almost over. It is not hazarding a guess for 2009-10, but noting the strength of domestic demand in the wake of the Indian government’s stimulus package, things may not be too bad. Let’s see what the next weeks bring.