Allegations and Adani’s Defense
In January 2023, New York-based short seller Hindenburg Research published a report accusing the Adani Group of market manipulation and accounting fraud. The conglomerate, led by billionaire Gautam Adani, responded with a 413-page rebuttal, framing the allegations as an attack on India’s economic independence and growth story.
Adani Group and India’s Growth Model
The Adani Group’s association with India’s “growth story” is not surprising. Prime Minister Narendra Modi’s strategy for India, which emphasizes large infrastructure projects as growth engines, has been heavily influenced by the industrial empire of the group’s founder, Gautam Adani. In turn, Adani’s conglomerate’s explosive growth has been fueled by his backing of Modi’s nation-building initiatives, which include everything from green hydrogen plants to airports. The market value of Adani Group increased from $6.5 billion to over $223 billion between 2014 and December 2022.
Market Reaction and Modi’s Silence
However, there was an abrupt reversal after Hindenburg’s report. A month after the study was released, the value of the publicly traded equities of the Adani Group had already dropped by more than half. Despite the fact that the situation has brought up important issues about India’s economy, Modi has decided to keep silent about it.
The Impact on India’s Economic Strategy
If Adani Group tries to avoid criticism by linking its success to India’s, then the opposite must also be considered: India’s growth project is put to the test by the collapse of its shares. It has raised questions about whether Modi’s strategy of supporting a select group of corporate titans will actually produce long-lasting effects. Beyond that, it has to be seen if Modi’s India can live up to expectations that it will be a major contributor to global economic growth, much like China has been over the last thirty years.
Modi and Adani: A Long-Standing Relationship
Adani’s and Modi’s ascents have long been linked. Modi gained notoriety as Gujarat’s chief minister from 2001 to 2014 with his “Gujarat model of development,” which included massive infrastructure projects like solar power plants, highways, and dams. In addition to helping to build several of these projects, Adani played a key role in persuading large corporations to support Modi’s candidacy as prime minister. Modi used Adani’s private jet from Gujarat to New Delhi, his new home, after winning the 2014 election.
Adani’s Expanding Business Empire
Adani’s commercial interests grew as Modi emerged as India’s most popular politician since Jawaharlal Nehru, the country’s first prime minister. His conglomerate partnered with the government on critical infrastructure projects within India and, increasingly, abroad. Prior to the controversy, Adani was the richest man in Asia, with a net worth of $150 billion in September 2022, up more than 5,000 percent since Modi took power. Winning government contracts, diversifying into key industries like defense and clean energy, and constructing vital infrastructure projects were the main drivers of his fortune. For example, the Indian government leased eight airports to private corporations, seven of which were acquired by the Adani Group. Investor interest in Adani Group stock increased as a result of these contracts.
The Fallout from Hindenburg’s Report
Although the government has clearly put its faith in Adani, Modi’s intentions to keep India the fastest-growing major economy in the world may run into trouble because of the Hindenburg report. The business had to postpone its development ambitions and cancel a $2.5 billion share offering following the vicious market crash. Following a margin call, Adani had to pay back a $1.1 billion loan in full. A $4 billion investment in a green hydrogen project by the Adani Group has been halted by the French energy behemoth TotalEnergies.
Reliance on National Champions
Throughout his time in office, Modi has either failed or been unwilling to enact structural changes that would enable more businesses to venture into new markets without taking on a lot of risk. Consequently, he is forced to rely on national champions like Adani. Few entrepreneurs are trusted by the government, are able to handle the bewildering state regulations, and, most importantly, are prepared to take on massive financial risks.
The Adani Group’s Debt and Economic Significance
Credit Suisse’s House of Debt research, released in 2015, looked at the risky debt loads of ten major Indian business conglomerates that are heavily involved in a range of infrastructure industries. While some of the ten groups have explored debt consolidation schemes, many have recently found themselves in bankruptcy court. The Adani conglomerate is the only group that has kept up its astounding rate of borrowing and investment.
According to estimated data, the combined earnings of the businesses owned by Adani and fellow tycoon Mukesh Ambani, who chairs Reliance Industries in India, amount to 4% of the country’s GDP. Additionally, around 25% of all publicly traded non-financial enterprises’ capital expenditures come from companies under the pair’s control.
Is Adani Too Essential to Fail?
The most important question is whether Adani has been too essential to the Indian economic enterprise to fail, even though many analysts worry that the Adani Group is too big to fail.
