The Adani Story and Indian Neoliberalism
A strike on the Adani group by short-seller the U.S.-based Hindenburg Research has led to the unravelling of the Gautam Adani story, which celebrated the spectacular rise, in an extremely short period of time, of the wealth of a man and his business empire. Much of that wealth disappeared following a crash in the stock values that shaved more than $100 billion off the market capitalisation of seven publicly listed Adani group companies. That led to the withdrawal, post-launch, of a $2.5 billion share issue and, possibly, of rounds of borrowing.
Meteoric Rise, Capital-Intensive Projects
Following those events, attention has shifted to what this episode says about the larger Indian growth story. Two features of the Adani story are of significance here. The first is that the gravity-defying climb in market value of the listed companies was accompanied by an expansion of the physical assets of the group that, in the same short span of time, displaced well-entrenched business groups that dominated India’s corporate sector. That kind of rise had happened only once before, with the Reliance group under Dhirubhai Ambani. As in that case, in this one too, the incumbent leaders could not stop the meteoric rise of an ‘upstart’ group.
The second is that the growth of the Adani group occurred through investments largely in capital-intensive infrastructural areas power generation, ports, airports and roads, besides mining and metals. Till well into the era defined by the Indian government’s embrace of neoliberalism, these sectors were largely the preserve of the public sector. This was not only because private entry was restricted by policy, but because even when such restrictions were being relaxed, private investment lagged. One reason was that these sectors required large investments, involved long gestation lags, and were, therefore, more risky. The other was that in many of these areas, the pricing policy of the government and of the public enterprises were such that when profits were made, projects were less profitable than elsewhere.
Rising to dominance in these areas was not, therefore, the same as entering into the provision of offshored software services, for example. That was the area which in the not-too-distant past delivered high profits and triggered a rapid rise in market valuation of the companies that made their promoters India’s new billionaires. Infrastructure needs large outlays, and the rewards are limited even when positive. Entrants into the infrastructural sectors need to risk large volumes of capital, only a small proportion of which can flow from the own coffers of a fledgling entrepreneur. Gautam Adani not only invested in more than one such project in any single infrastructural area but also made investments in greenfield projects or acquisitions to build large asset shares in multiple areas. His genius seemed to lie in the ability to mobilise the resources required for this near-impossible task.
The Favourable Factors
When climbing that hill, Mr. Adani was undoubtedly favoured by features of India’s neoliberal policy regime after the turn of the century, that underpinned the spike in GDP growth to around 8% per annum during 2003-04 to 2011-12. One was India’s success, especially after 2003, in using liberalisation to attract large inflows of foreign financial capital into its bond and equity markets. The consequent surge in domestic liquidity swelled deposits in India’s banking system and set off a credit boom.
Banks looking to expand their loan base had to resort to aggressive lending practices that took them into new areas, including infrastructure which was earlier considered too risky. This shift was encouraged by contradictory elements of the neoliberal growth strategy. On the one hand, the government focused on building infrastructure needed to support a private sector-led growth strategy.
On the other, it was committed to both incentivising the private sector with tax concessions as well as veering in the direction of fiscal conservatism that abjured debt-financed expenditure. To ensure both, spending had to be reined in, including public investment. That raised the question as to which actors would invest in the infrastructure, since, till then, the private sector had largely shunned that domain. To resolve this conundrum, the neoliberal state chose the option of getting the private sector to do the job, attracting it by promising support to mobilise the required resources as well as to ‘de-risk’ and improve the profitability of such investments. Subsidies and ‘viability gap funding’ from state coffers and flexible pricing were examples of such support. A crucial component of that agenda was the provision of large volumes of credit from a public banking system awash with liquidity to private sector firms investing in infrastructural areas.
The spate of reports that followed the Hindenburg hit (some of which contain convincing data) suggest that the Adani group benefited disproportionately from these features of the neoliberal policy regime. It borrowed heavily from public sector banks as well as obtained equity financing from public financial institutions such as the Life Insurance Corporation of India, to establish a presence in a range of infrastructural areas in a short period of time. Benefits did not stop there. Evidence suggests that official permissions, easy environmental clearances, access to land and convenient policies, combined to drive the Adani expansion as well as convey the impression that the group was too important not to succeed. It was inevitable that this special treatment that contributed to the group’s race to the top would be attributed to the proximity of group-founder Gautam Adani to Prime Minister Narendra Modi. The ideological case for incentivising the private sector can, after all, provide the excuse for excessively favouring one or more private players, for whatever reason. Contrary to the rhetoric of neoliberal advocates, the embrace of markets does not increase transparency and reduce bias.
Regulatory Restraint
In fact, rumours of state patronage possibly also encouraged foreign bond and equity investors searching for higher yields to buy into Adani, whenever the opportunity arose. But, possibly influenced by the need to retain control over a capital thirsty business, Adani seems to have preferred debt, with free floating shares of its listed companies available for trading being a small proportion of the total. To mobilise that credit, Hindenburg argues, and many others concur, the group used related-party shell companies claiming to be independent to park finance in tax havens abroad, that was then used to acquire the shares of Adani firms. That helped raise share values to unwarranted levels, but, despite red flags from multiple sources, that did not evince any scrutiny by Indian regulators whether of the Adani firms, the foreign investors or the banks investing in and lending to the companies. State support was combined with regulatory forbearance. The resulting soaring share values served in more ways than raising Gautam Adani’s wealth status. They helped to mobilise large volumes of credit from domestic and foreign financial firms by pledging shares with inflated values as collateral. Finance did not seem a constraint that could stop the group’s expansion. Till Hindenburg came along.
The Adani group sought to dismiss the allegations of the shortseller and tellingly suggested that this was not just an attack on the group but on the Indian success story. But that does not seem to have convinced private creditors and investors. Share prices collapsed leading to margin calls from those holding shares of inflated value as collateral. Thus far, Adani is holding out, even opting for early repayment of loans totalling $1.1 billion and releasing some pledged shares of group companies. But the story being told has not yet reached completion. What it has already made clear, however, is that neoliberalism is not about market competition and transparency, but an instrument to engineer income and wealth redistribution. In this case in favour of one individual and his group.
(C.P. Chandrasekhar taught for more than three decades at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi. He is currently Senior Research Fellow at the Political Economy Research Institute, University of Massachusetts, Amherst. Courtesy: Author’s blog at networkideas.org.)
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Adani’s Fraudulent Empire Exposed
Courtesy: Peoples Democracy
A small U.S. investor firm has challenged the Indian behemoth, the Adani group, and shaken it to its foundations. The Hindenburg Research, a short selling firm, brought out a 129-page report on the Adani group marshaling evidence of all the funding operations and offshore activities of the 578 subsidiaries and shell companies linked to the seven listed companies of the Adani group. The report states that this is the “biggest con in corporate history”.
The report lays bare the complex network of funds and shell companies, some of them in Mauritius, Cyprus and UAE which have been used for manipulating the share prices of the listed companies and to shift money on to their balance-sheet “to maintain the appearance of financial health and solvency in the midst of high debts and few liquid assets”. The report estimates that the valuations for the Adani companies were overstated as much as 85 per cent. The report accuses the Adani group of having “engaged in brazen stock manipulation and accounting-fraud scheme”.
The Adani group responded by calling the Hindenburg report a “calculated attack on India”. Having no worthwhile defence to put up, the Adani group sought cover under nationalism to cover its flanks. It declared that this was an attack on “independence, integrity and quality of Indian institutions and the growth story and ambition of India”.
The effect of the Hindenburg report was instant. In the week following the report, the Adani group lost $67 billion, or, around Rs 5.6 lakh crore of market capitalisation in the stock market. Gautam Adani himself has lost about $ 50 billion of his wealth and from being the third richest man in the world, he has fallen to the fifteenth position.
The fraudulent dealings of the Adani group are of great concern to the people because, over the years, what have been looted are the country’s natural resources and public funds. The Adani group has become, thanks to the patronage of the Modi government, the largest private operator of ports, airports and the biggest in grain warehousing and controls a fifth of power transmission and the cement industry. It is the largest thermal power private producer in the country with large stake in coal mining.
Much of its acquisitions and assets have been facilitated by loans from nationalised banks and investment from institutions like the Life Insurance Corporation. Around Rs 80,000 crores of funds from LIC are invested in Adani companies and 40 per cent of all loans taken by the group from banks are through the State Bank of India. The crash in the share prices of the Adani group companies are, therefore, a threat to the people’s savings and public funds.
The Hindenburg report came on the eve of an Adani open share offer to raise Rs 20,000 crores. Despite the crash in share prices of the Adani group of companies, the offer was finally fully subscribed due to big amounts of money put in by non-institutional investors which included high net worth individuals. In an act of class solidarity, it is reported that leaders of big business like Mukesh Ambani, Sajjan Jindal, Sunil Mittal and Pankaj Patel put up money to buy shares. However, the very next day, Adani enterprises cancelled the issue of shares and declared it would return the money to all the investors. This sudden decision seems to be motivated by the fact that allegations have arisen that two Adani front companies have invested in the follow-on offer.
The meteoric rise of the Adani group and its rapid expansion has not gone unquestioned in India. Over the years, many serious questions and accusations were leveled at the way in which Gautam Adani went about building his empire. Charges of over-invoicing of coal imports, opaque offshore funding of his companies, gross violation of environmental norms and bending of rules and regulations to get projects through were frequently raised in the media and by business analysts. But none of these found any response from the regulatory agencies like the SEBI and RBI or enforcement agencies like the ED.
The Adanis have used their financial and political clout to intimidate and suppress journalists who questioned their dubious dealings. Civil defamation suits were filed against journalists and news outlets who carried any stories about the questionable deals of the Adanis. For instance, a hundred crore defamation suit was filed against The Wire in November 2017 for carrying a report questioning why the Indian Oil Company and GAIL India were investing in Adani’s LNG Terminal. Other journalists who face such defamation cases are Paranjoy Guha Thakurta for writing in the Economic and Political Weekly, Ravi Nair and other journalists. The Adani group has sought to silence the media through law suits.
The real lessons from the Adani-Hindenburg saga should not be obscured in the welter of charges about stock manipulation, money laundering and accounting fraud and counter-charges regarding the conspiracy to malign India’s top most industrialist.
The Adani story is incomplete without viewing the rise of India’s richest man as an outcome of the patronage and protection offered by Narendra Modi. The nexus between Modi and Adani began in 2002 when Modi became the chief minister of Gujarat. Since then, the fortunes of Adani became intimately linked to the political trajectory of Narendra Modi, who eventually reached Delhi as the prime minister in May 2014.
Adani’s wealth which was Rs 50.4 thousand crore in 2014 increased to Rs 10.30 lakh crore by 2022. Modi’s favourite capitalist had a free run. No regulatory agency or governmental authority could touch him. The impunity with which the Adani group pursued its business interests is one of the worst examples of crony capitalism in contemporary times. The Modi-Adani nexus symbolises the Hindutva-corporate alliance, which is ruling the country today. Adani is confident that with the backing of the Modi government, he can weather the storm. But for the citizens of this country, who are seeing democracy being demolished and their livelihoods threatened by the communal-corporate nexus, it is essential that the Adanis be held accountable for the plunder and ill-gotten gains.
It is, therefore, necessary to wage a determined struggle to see that the regulatory bodies and law enforcement agencies investigate the entire financial and business activities of the Adani group. A high level investigation team must be constituted to go into the allegations levelled by Hindenburg Research against the Adani group and it should be monitored by the Supreme Court.
