Over the past two decades, Indian multi-billionaire Gautam Adani's close ties to Prime Minister Narendra Modi have helped the Gujarati businessman become Asia's wealthiest person. Mr Adani's meteoric rise also made him the poster boy for India's growth story -- until allegations of fraud and stock manipulation brought his eponymous business empire to its knees. With his conglomerate losing US$110 billion in market value within days, Mr Adani has become a cautionary tale about the perils of cronyism in Mr Modi's India.
The partnership between Mr Adani and Mr Modi goes back to 2002, when Mr Modi -- then Chief Minister of Gujarat -- faced heavy criticism for failing to contain anti-Muslim mobs that killed more than a thousand people in the state. Following the massacre, Mr Modi was barred from entering the United States and largely abandoned by India's business leaders. Mr Adani, who continued to support Mr Modi and his Bharatiya Janata Party (BJP), was handsomely rewarded for his loyalty. Over the next decade, the Adani group grew at breakneck speed, winning multiple state government contracts and expanding into food imports and exports, coal trading and mining, power, oil and gas exploration, and infrastructure.
Over the years, the relationship became increasingly symbiotic. When Mr Modi was elected prime minister in 2014, he flew to Delhi on Mr Adani's private jet. Again and again, the government relaxed regulations or amended rules in ways that benefited Mr Adani's businesses. In 2017, for example, the government designated Mr Adani's power plant in Godda a special economic zone, allegedly tweaking the rules to give the group a ₹5 billion (about two billion baht) bonanza. In 2019, Mr Modi's government handed Mr Adani the rights to operate six newly privatised airports, despite the company's utter lack of experience in the sector.
The Adani Group's rapid growth, along with a truly ambitious debt-driven investment programme enabled by spectacular stock-price appreciation, made the company the standard-bearer of the government's capital-investment push, data-industry expansion, and net-zero transition plans. In less than a decade, Mr Adani's fortune grew from US$7 billion (about 240 billion baht) to $120 billion, making him the world's third-richest person (until the group's stock began to tumble in late January, shrinking his net worth by half).
The illusion was shattered on Jan 24, when the short-selling firm Hindenburg Research published a devastating report accusing the group of "pulling the largest con in corporate history". Following a two-year investigation, Hindenburg accused the conglomerate of engaging in a "brazen stock manipulation and accounting fraud scheme over the course of decades", pointing to 38 Mauritius-based shell companies that were allegedly used to manipulate share prices and siphon money from publicly listed Adani Group companies.
While the Adani Group appealed to Indian nationalism, framing the Hindenburg report as a "calculated attack" on India's independence, institutions, and growth story, the market response has been swift and lethal. In early February, Moody's downgraded the ratings outlook for several Adani Group companies, and MSCI cut the weightings of four, compounding the conglomerate's troubles. And the rout continued even after the group announced several confidence-building measures, such as paying back loans worth $1.1 billion ahead of schedule and halving its revenue growth targets.
Whether or not the Adani Group rebounds, its current troubles must be regarded as an indictment of India's overreliance on a few national champions to drive economic development. This strategy has failed to deliver broad-based and inclusive development, leaving India with disappointing job growth, declining consumption, falling investment rates, and environmental devastation. Instead of relying on industrial conglomerates like Reliance, Tata, and Aditya Birla, the government should use this moment as an opportunity to change course. Encouraging small and medium-sized companies and expanding social services would boost job creation and improve economic sustainability.
While Mr Modi's popularity appears unaffected by the scandal, it is too soon to assess the political fallout. Mr Modi and the BJP have faced numerous corruption scandals over the years and managed to overcome them all, thanks to their remarkable control of the media.
But Mr Adani's downfall could be different, because it discredits a key tenet of Mr Modi's economic philosophy. Lavishing endless financial benefits and regulatory dispensations on a single oligarch, it turns out, is not a reliable development strategy. ©2023 Project Syndicate
Jayati Ghosh, Professor of Economics at the University of Massachusetts Amherst, is a member of the UN Secretary-General's High-Level Advisory Board on Effective Multilateralism.
