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India’s second-richest man faces federal criminal charges in the United States, nearly two years after an American short seller was implicated in accounting fraud and stock market manipulation at Gautam Adani’s business. Prosecutors alleged that Adani – whose business growth has tracked the political rise of Prime Minister Narendra Modi – and several associates were part of a scheme to bribe Indian officials. These allegations are yet another serious test of credibility for India’s business establishment, regulators and law enforcement agencies. How they respond will be critical to the country’s business reputation. India’s investment case is based not only on its size and impressive growth, but also on its claim to be a safe alternative to sovereign China.
Prosecutors in the Eastern District of New York allege that Adani and seven other executives were part of an attempt to pay or attempt to pay more than $250 million in bribes to Indian state government officials to secure multibillion-dollar green energy supply contracts. They allege that the scheme was hidden from US banks and investors from whom the business raised millions of dollars in capital. The Adani Group said the allegations were “baseless and denied” and added that it would seek “all possible legal avenues”.
News of the allegations sent Adani Companies’ share prices plunging as the group emerged from a protracted effort to deny allegations made by New York-based short-seller Hindenburg Research in early 2023 and lenders and was boosting confidence among investors. The Hindenburg Report itself was a test for India Inc – but it failed. The business and government establishment largely rallied around the Adani group, echoing its narrative that the short seller’s report was a “calculated attack on India”.
Although the stock market regulator, Sebi, has launched an investigation, it has taken little action in response to the Hindenburg report and reporting by the Financial Times and others that alleged Adani had manipulated its own shares – Which the group has vehemently denied. India did not bring this moment to the debate over whether its corporate governance standards and market controls were strong enough for a global top-five economy that prides itself on being the world’s largest democracy.
The country’s political and business elite must now take the allegations made by US legal authorities seriously, and ensure that they are properly investigated at the local level. While there may be irritation at the perceived interference of foreign agencies, this is the price of tapping international investors. There are also important questions about why US law enforcement agencies are pursuing the case instead of Indian authorities.
The charges, 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 Adani himself has a long association with the Prime Minister, who is also from Gujarat. His conglomerate, spanning ports and airports to mining and green power, is central to Modi’s plans to build India’s infrastructure as the backbone of its further growth. Doing so will depend on foreign investment, and investor confidence.
Even advanced economies have problems with crony capitalism. Perhaps more than any recent predecessor, returning US President Donald Trump has surrounded himself with billionaire businessmen vying for the right. But such models usually lead to the most growth. Modi government’s bold ambitions will be best served by ensuring a strong and transparent regulatory and legal environment to the emerging economic powerhouse.
