People’s eyes glaze over when they hear the word “infrastructure,” but there has been nothing boring about the unraveling of India’s infrastructure king, Gautam Adani. A U.S.-based short seller, Hindenburg Research, published a 106-page forensic report accusing Adani and his companies of a vast scheme of stock manipulation and fraud, using a complex system of shell companies. And poof: Within days, and despite Adani’s denial of the allegations, more than $110 billion of the companies’ market capitalization vanished, leaving Adani himself around $58 billion poorer in paper wealth. Can the plot thicken any further? It certainly can. The Adani affair could become India’s so-called Lehman moment—leading to the unraveling not only of one of India’s largest and best-connected corporate empires but of an entire nation’s ambitions to harness what will soon be the world’s largest population in an effort to realize the country’s vast economic potential.
But ironically, the Adani crisis is exactly what India needs right now to accelerate its journey. There is much complacency among the Indian elite and around the world. The country’s size, burgeoning market, youthful demographics, and politically muscular government makes India’s rise inevitable; fix its physical infrastructure, and the world will be beating down India’s door to invest in and do business with—or so the mantra goes. Poor corporate governance, crony capitalism, defanged regulators, and uncritical media are just part of the price to be paid for India’s rise. After the Adani jolt, there will inevitably be a reexamination of the India narrative, with fresh attention paid to fixing India’s system of economic and corporate governance.
Until that happens, it is not hard to imagine the many ways in which the Adani crisis can cause lasting damage. His sprawling conglomerate has been key to tackling India’s infrastructure challenges, from an inadequate transportation and logistics system to an unreliable energy supply. The Adani Group controls India’s largest airport company, the largest private port operator, and the second-largest cement-maker. Adani warehouses store almost a third of India’s grain, Adani Enterprises is the largest coal trader in the country, and it controls 20 percent of India’s power transmission lines. He is also leading the charge on a planned $50 billion hydrogen ecosystem, manufactures photovoltaic cells and wind turbines, and distributes wind energy. If Adani stalls, many argue, then so could India’s progress.
Adani’s travails have implications beyond these specific sectors. India needs investment and deep financial markets; here, too, the crisis pinches. At one point, Adani companies accounted for 6 percent of shares traded on India’s two main stock exchanges and were responsible for 7 percent of total capital investment of India’s 500 largest nonfinancial firms. Now, foreign investors might look at Hindenburg’s accusations as a sign of deeper rot in corporate India, and they may worry that the country is too risky an investment. Indeed, many foreign investors already believe the Indian stock market is overpriced and have therefore reduced their exposure to the country’s assets. Since the Hindenburg report, S&P Global Ratings cut its outlook on two of Adani’s dollar bonds to negative, and there has been a wholesale withdrawal from Adani holdings by Norway’s sovereign wealth fund, the world’s largest stock investor. Other investors are bound to get skittish.
The personal bond between Adani and Indian Prime Minister Narendra Modi is common knowledge.
In the meantime, the crisis has also exposed India’s financial markets regulator, the Securities and Exchange Board of India, as having been asleep at the wheel. India’s news media also chose to look the other way. Before the Hindenburg report, media outlets that raised questions about Adani faced lawsuits and arrest warrants, and the rest went into self-censorship. After the Hindenburg report appeared, major TV news channels managed to ignore the story on their prime time shows for two whole days, according to Alt News, a leading fact-checking site. In fact, one of the last bastions of independent journalism among India’s mainstream media, NDTV, was acquired by Adani in December 2022. The government has been mostly silent on the crisis. The personal bond between Adani and Indian Prime Minister Narendra Modi is common knowledge.
The Adani crisis also threatens India’s international geopolitical standing. India has been building influence in its neighborhood as a stepping stone toward its global aspirations. Unlike China’s far more ambitious, state-led Belt and Road Initiative, India’s forays have been channeled via the private sector. Adani has been on the forefront of supplying electricity to Bangladesh, building ports in Sri Lanka, and mining coal in Indonesia and Australia. Stalling Adani, especially because of his strong connections to the government, could raise questions about the Modi administration’s foreign economic policy and affect India’s credibility abroad.
There is no doubt that India’s progress will hit a speed bump in the near term as Adani struggles to maintain focus, retain the trust of key partners, and raise capital. That said, Adani’s companies deal in tangible products; this is no cryptocurrency exchange. They are backed by hard assets and generate cash. Adani’s power projects, for example, rely on the government as a reliable customer and revenue source; no matter what happens to Adani personally, fast-growing India has an unending demand for his products. His businesses generate rivers of cash that can service debt or—in the eventuality of a sell-off—attract buyers. Either Adani will continue to operate the businesses or someone else will.
What about the possibility of a financial market contagion? The risk of a default on Adani debt could ease as distressed debt specialists and hedge funds see opportunities in the crisis and look to buy Adani bonds at a bargain. There have been reassuring words from various analysts to shore up confidence in Indian markets. Goldman Sachs analysts noted that the crisis is “unlikely to have a broader contagion impact.” The Indian central bank governor declared that “the strength, size, and resilience of the Indian banking system now are much stronger and larger to be affected by a case like this.” At the same time, key state-owned financial sector enterprises, such as the Life Insurance Corporation and the State Bank of India, have only limited exposure to Adani companies. Most significantly, India has a well-capitalized stock market, with more than a $3 trillion turnover annually; India’s Nifty 50 index remains nearly 2.5 percent above where it was at this time last year.
What’s more: Sentiment matters. The world needs the India story to work. It is a standout nation in a post-pandemic global economy rife with problems: slowdowns in the West, a war in Europe, jitters in China, and a growing rift between Beijing and key players in the global economy. India’s key role in shaping the world’s digital and environmental agenda is undeniable. In its role presiding over the G-20 this year, New Delhi will work hard to make the case that the world cannot make progress unless India makes progress.
For all the concerns raised by the crisis, the risk looks like it can be managed for now. But no matter how the plot unfolds, one thing is clear: The Adani crisis has delivered an unexpected benefit by serving as a harsh reminder that India’s greatest obstacle is not its still-rickety physical infrastructure. Above all, India must repair the broken state of its systems of governance, transparency, and checks and balances—in other words, the soft infrastructure within corporate boardrooms, at the nexus of business and government, and among watchdogs, including the media. The Hindenburg report’s greatest gift is that it may rattle India’s business, government, and media elite just enough for this reform process to finally get underway.
