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Almost two years after a US short seller alleged Gautam Adani’s businesses had engaged in accounting fraud and stock market manipulation, India’s second-richest man faces federal criminal charges in the US. Prosecutors allege that Adani — whose business rise has tracked the political ascent of Prime Minister Narendra Modi — and several associates were part of a scheme to bribe Indian officials. The charges pose an even more serious test of credibility for India’s business establishment, regulators and law enforcement. How they respond will be vital for the country’s business reputation. India’s investment case is based not just on its size and impressive growth but on its claim to be a safer alternative to an autocratic China.
Prosecutors in the Eastern District of New York allege Adani and seven other executives were part of an effort to pay or promise more than $250mn of bribes to Indian state government officials to obtain green energy supply contracts worth billions of dollars. They allege the scheme was concealed from US banks and investors from whom the businesses raised millions of dollars of capital. Adani Group said the accusations were “baseless and denied” and added that it would seek “all possible legal recourse”.
News of the charges sent share prices of Adani companies tumbling just as the group was emerging from a lengthy effort to deny the allegations made early in 2023 by Hindenburg Research, a New York short seller, and bolster confidence among lenders and investors. The Hindenburg report was itself a test for India Inc — but one which it ducked. The business and government establishment largely closed ranks around Adani Group, echoing its narrative that the short seller’s report was a “calculated attack on India”.
Though the stock market regulator, Sebi, launched investigations, it has taken little action in response to Hindenburg’s report and reporting by the Financial Times and others that alleged that Adani manipulated its own shares — which the group has vigorously denied. India did not seize the moment to debate whether its corporate governance standards and market controls were sufficiently robust for a global top-five economy which prides itself on being the world’s largest democracy.
The country’s political and business elite should treat seriously the accusations now emanating from US legal authorities, and ensure they are properly investigated domestically. While there may be irritation at perceived interference by overseas agencies, that is the price of tapping international investors. There are also important questions over why it is American law enforcement bodies rather than India’s authorities that are pursuing this case.
The allegations, after all, go to the heart of how economic power in India is concentrated in politically-connected, family-run conglomerates — and investor concerns over “crony” capitalism. Not only does Adani himself have long associations with the prime minister, who is also from Gujarat. His group, spanning ports and airports to mining and green power, is central to Modi’s plans to build up India’s infrastructure as the backbone of its further development. Doing so will rely on foreign investment, and investor confidence.
Advanced economies have issues with crony capitalism, too. Perhaps more than any recent predecessor, returning US president Donald Trump has surrounded himself with billionaire businesspeople competing for favour. But such models typically lead to suboptimal growth. The Modi government’s bold ambitions will best be served by ensuring the emerging economic powerhouse has a sturdy and transparent regulatory and legal environment.
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