Adani’s fall raises questions about the billionaire’s close ties to Modi

The rapid fall of Indian billionaire Gautam Adani has sparked a new investigation into the tycoon’s close ties to Indian Prime Minister Narendra Modi.

Adani lost his crown as Asia’s richest man in a matter of days as his fortune collapsed following a late January report by US short-selling firm Hindenburg Research alleging fraud.

The effects have reverberated across global markets, and last week MSCI reduced the weight of four Adani shares in the MSCI Emerging Markets Index.

India’s leading industrialist has also come to the attention of the country’s watchdog, the Securities and Exchange Board of India. The market regulator is now launching an investigation into Hindenburg’s allegations against Adani’s business empire.

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The fiasco exposed a longstanding relationship between India’s super-rich corporate titans and the political elite.

The Hindenburg Report further drew attention to the billionaire magnate’s close ties to Modi.

“Adani has accomplished this gigantic feat with the help of government aides and the home-based businesses of international companies that are facilitating this activity. These corruption issues affect multiple levels of government,” the report says.

In a rebuttal that spanned over 400 pages, the Adani Group denied the allegations, calling them a “deliberate attack on India”.

The company did not respond to a CNBC request for comment. The Prime Minister’s Office did not respond to a request for comment.

‘Clan capitalism’

India has always struggled with “clan capitalism,” but the cozy relationship between Modi and Adani “has taken it to the next level,” according to Ashok Swain, head of peace and conflict studies at Uppsala University in Sweden.

“Modi and Adani probably have the closest relationship between a politician and a businessman; of course, this never happened in India. Their ascent was a shared one,” added Swain, an experienced columnist on Indian politics.

The Adani family conglomerate spans from airports and seaports to coal and renewable energy and, more recently, the media.

Modi and Adani probably have the closest relationship between a politician and a businessman.

Ashok Swain, Indian political commentator

India’s “growth model” requires “a certain degree of crony capitalism,” said Milan Vaishnav, director of South Asia at the Carnegie Endowment for International Peace.

Vaishnav added that the Modi government’s industrial policy is based on creating national champions in industry and Adani is a “poster child” by far.

“There is no doubt that Adani enjoys this position today, at least in part because of his proximity to the prime minister,” he said, “but also because of the feeling that he is able to carry out projects at scale.”

“fruitful relationship”

Relations between Adani and Modi are long-standing.

Both men hail from the western Indian state of Gujarat, where Modi was chief minister in 2001. Adani was an early supporter of Modi’s political aspirations and championed the Indian leader’s vision of India’s development.

Modi flew Adani after he was elected to national office in 2014.

“It is an open secret that Adani and Modi developed a close bond during their years in Gujarat,” Vaishnav said.

“There is no doubt that the two men’s fortunes are linked,” he said, “especially in the last few years when the government has increased capital spending as it makes a concerted effort to develop infrastructure.”

Adani Group is a key player in Modi’s drive to turn India into a $5 trillion economy, said Alim Remtullah of Medley Advisors.

Both men embody “Gujarat’s growth model,” he said, referring to the close relationship between big business and government.

“Infrastructure in particular is a key element of Modi’s state-building plans. Adani [Group] is one of the few firms in the country that can implement these major infrastructure projects across the country,” Remtulla said in an interview with CNBC’s Squawk Box Asia.

“Similarly, Adani needs Modi’s implicit support to raise funds for these capital-intensive projects. So it’s a long and fruitful relationship spanning decades,” he said.

Opposition attacks

The Hindenburg Report proved to be a political gift for India’s opposition, which had been denouncing Modi for years for his ties to Adani. Ahead of next year’s national elections, opposition critics seized on the report to attack Modi and his party.

India’s main opposition party Congress staged protests and demanded an investigation into Hindenburg’s allegations. Opposition critics have also accused the Modi government of providing unfair services to Adani’s business empire.

“The whole country has seen a close connection between the commercial interests of the Adani Group and your [Modi’s] zeal to help him through public policy. This pattern is consistent across all sectors, from agriculture to energy to transport,” Congress Party General Secretary Jairam Ramesh said last week.

In 2018, the Modi government reportedly changed rules that allowed Adani to participate in — and eventually win — tenders for six airports. This was met with outrage amid criticism of nepotism. The government denied these allegations.

After Modi became prime minister, Adani continued to benefit from the relationship, but on a much larger scale, Swain said.

“In addition to granting licenses for airports and ports, changing environmental regulations for Adani coal mines, and adjusting regulations in favor of Adani’s shares in special economic zones, Modi has helped Adani’s business in many ways,” he said.

In his address to parliament last week, the prime minister appeared to have ignored criticism from the opposition and made no mention of Adani.

“Blessing 1.4 billion countrymen is my biggest Suraksha Kavach,” Modi said, using a Hindi term meaning “protective shield.”

“And you can never break through this protective shield with weapons of abuse and lies,” he said as opposition lawmakers chanted “Adani, Adani.”

Adani dismissed claims that he received personal favors from Modi, calling such claims unsubstantiated.

“Prime Minister Modi and I are from the same state. This makes me an easy target for such baseless accusations,” the mogul said, according to a January report in India Today.

“My professional success is not due to any single leader, but to political and institutional reforms initiated by multiple leaders and governments over more than three decades,” he said in the report.

Political damage?

Politically, observers say it is difficult to predict what impact the new check on the popularity of Modi and his ruling Bharatiya Janata party will have.

“I am skeptical that the Adani crisis will personally tarnish Modi or hinder the electoral prospects of the BJP,” Vaishnav Carnegie said.

However, the relationship between Modi and Adani is “so long and strong” that it will be difficult for the prime minister and his party to emerge from this crisis unscathed, Swain added.

“Adani’s close association with Modi compelled his supporters and Indian Hindu nationalists to defend [Adani] over the past nine years. Now it will not be so easy to distance yourself from Adani,” he said.

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