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India: Is the Adani crisis becoming a liability for Modi?

Murali Krishnan in New Delhi
February 7, 2023

Controversy surrounding the Adani Group's business practices and the Indian government's close ties with the industrial giant have sparked public protest and emboldened the BJP's opponents.

Prime Minister Narendra Modi with Gautam Adani
Indian PM Modi (r) is widely perceived to be a close ally of Gautam Adani (l), whose business interests often align with the government's growth goalsImage: Siddharaj Solanki/Hindustan Times/IMAGO

India's political opposition is stalling the functioning of parliament this week, demanding an impartial probe into financial fraud allegations against the Adani Group.     

The US-based investment short-selling firm Hindenburg Research recently released a scathing report outlining allegations of accounting fraud and market manipulation at Adani Group. 

The massive industrial conglomerate is considered to have close ties with India's ruling Bharatiya Janata Party (BJP) government and Prime Minister Narendra Modi.  

Lawmakers have called for investigations into Adani's financial dealings and the potential impact of its projects on the environment and local communities. 

In several regions in India, protests criticizing the BJP were held in front of the Life Insurance Corporation (LIC) and State Bank of India (SBI) branches, both of which have exposure to Adani group companies.  

"How is it possible that one of India's largest business groups, one that has been allowed to build monopolies in airports and seaports, could have escaped serious scrutiny for so long despite persistent allegations?" asked the opposition Congress party's communications chief Jairam Ramesh during a press conference.  

"The allegations require serious investigation by those who are responsible for the stability and security of the Indian financial system, which is the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI)," he added. 

Congress MP Manish Tewari told DW that the episode was an opportunity for India to strengthen its regulatory mechanisms to prevent future market failures, especially as more Indian companies go global and international investors grow more interested in India.  

"An impartial parliamentary inquiry is needed. It is an opportunity for the country to strengthen its regulatory mechanisms to prevent future market failures," Tewari said. 

A hawker walks past Adani signage in Mumbai, India, 26 August, 2022
Since the report was released on January 24, Adani's market value has dropped by more than $100 billion (€93.21 billion)Image: Indranil Aditya/NurPhoto/picture alliance

Adani too big to fail? 

Adani has denied the fraud allegations, and described the report as "not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India." 

However, investors up to this point have reacted to the report by selling off shares in Adani Group stock.

Since the report was released on January 24, Adani's market value has dropped by more than $100 billion (€93.21 billion), prompting the group to abandon a $2.5 billion stock offering. 

There are seven India-listed companies bearing the Adani name, including firms in power transmission, green energy and port operation. The group also owns cement producers, airport operators, coal miners and a digital marketing company.

Adani Group's financing via the LIC and the State Bank of India (SBI) has raised concerns over potential consequences for the institutions' financial stability and for the savings of millions of Indians.  

The LIC is an investor in five Adani companies with stakes ranging from 1% to 9%. 

"People thought their money is safe in public sector banks and institutions," said Ram Gopal Yadav, an MP from the Samajwadi Party. 

How can Modi weather the storm? 

The BJP has not come out openly on the issue. Modi is widely perceived to be a close ally of Gautam Adani, whose business interests often align with the government's growth goals. 

Adani Group has been a major supporter of Modi's initiatives, such as "Make in India" and "Digital India." 

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Finance Minister Nirmala Sitharaman has downplayed the company's market plummet as a company-specific issue that does not pose a threat to macroeconomic stability. 

"There have been occasional blips in the market," Sitharaman said in an interview with the "Times Now" news channel. 

The outcome of the Adani controversy and its impact on Modi, as India holds nine state elections this year and the crucial general election in 2024, will depend crucially on whether the opposition parties will be able to keep the controversy alive on the public's mind.   

"This is all about state-business relations. Inappropriate deals widen inequalities and there should be regulatory mechanisms to inform if this state-business goes crony," Lekha Chakraborty, professor and chair at India's National Institute of Public Finance and Policy (NIPFP), told DW. 

The uproar also comes at a time when India holds this year's presidency of the G20 group of leading economies. 

"This case won't cast shadow on the G20 because it is a specific case of capital mobility and inappropriate use of offshore tax havens," added Chakraborty. 

Given the Modi government's strong base of support, and its prior success in navigating past controversies and political challenges, it is still uncertain if this current controversy will end up denting the BJP's image. 

Edited by: Wesley Rahn

Murali Krishnan
Murali Krishnan Journalist based in New Delhi, focusing on Indian politics, society and business@mkrish11