Adani Group’s market capitalisation tanked by around ₹1 lakh crore followed by a significant stock market correction soon after the US short seller Hindenburg Research released a report on January 24 on the Group’s malpractices in offshore tax and high debt. Adani group’s all 10 stocks fell in early trading, erasing the conglomerate’s around $120 billion. The ongoing rout in Adani shares pushed India out of world’s top five biggest equity market list. According to Bloomberg, the slide is expected to continue and India may slip further down the list. Nowadays, this report has put Modi goverment and his bosom friend Adani in quandary.
1.The beginning of Modi and Adani relation
The close working relationship between Mr. Adani and Mr. Modi begins in earnest in 2002, when Hindu-Muslim riots ravaged Gujarat, where Mr. Modi served as chief minister and where the Adani Group is based. Mr. Modi’s image was badly damaged in the wake of the mass violence, in which 1,000 people, most of them Muslims, were killed. Some leaders of Confederation of Indian Industry (CII), India’s largest trade association in 2003, questioned and criticized Mr. Modi about his state’s “law-and-order situation” .
It was Mr. Adani helped to create an organization Resurgent Group of Gujarat (RGG) to diminish CII and worked with Mr. Modi’s state government. Under Mr. Modi’s steady hand, the state’s economic growth accelerated substantially.A “Gujarat model” soon emerged and Mr. Modi’s image was rehabilitated. In return, Modi’s administration gave preferential treatment and leased land to Adani at “knock-down prices”. Up to now, Adani has built a Rs 47,000 crore infrastructure empire out of Gujarat, a period that coincides with Narendra Modi’s stewardship of the state. There are parallels between the two. Both have their roots in Gujarat. Both have bloomed in their respective spheres in the past decade. It was Adani’s private jet Modi used to fly to Delhi in 2014 after winning the general election.
2.After Modi become PM
Since Modi came into PM office in 2014, Mr Adani’s net worth has increased by about 230 percent to more than $26bn as he won government tenders and built infrastructure projects across the country. The Government was favoring Adani group particularly in key public sector biddings or by easing regulations. Some instances are the following.Give special permission to Adani. When Modi government approved the privatization of six airports in 2018, it relaxed the rules to widen the pool of competition, allowing companies without any experience in the sector to bid.
There was one clear winner from the rule change: Gautam Adani, the billionaire industrialist with no history of running airports, scooped up all six. Overnight Mr Adani became one of the country’s biggest private airport operators. The exemption of duties and taxes for Adani. In the final months of Mr Modi’s first term in 2019, New Delhi gave the green light for Mr Adani’s plant to be declared a special economic zone, a designation that comes with significant tax benefits. The office of the state accountant general warned in a leaked audit report that exemption represented “preferential treatment” that would result in “undue benefits”. Existing Legal loopholes in India.
The Department of Economic Affairs in Finance Ministry relaxed the overseas investment rules in August, 2022, without consulting Securities Exchange Board of India (SEBI) and the other regulators, making it legal for domestic corporate entities like Adani to make investments overseas, without prohibiting such investments being made in countries where financial regulation is weak. It seems to enable a few influential corporate groups in India to manipulate the stock markets as they wish, evade taxes on a large scale through money laundering and influence decision making in the government to their benefit. Citing confidentiality, an officer in Finance ministry said that he could not disclose whether the Income Tax Dept had taken up any investigation or not.
Further, the Minister provided, “based on information shared by SEBI“, the details of the ultimate beneficial owners of FPIs (Foreign Portfolio Investors) who invested in the six Adani companies as on June 30, 2021. Among them were many Mauritius-based FPIs. Modi’s generous loans to Adani. During the last nine years, Modi government has privatized and gifted away several public assets starting from sea ports, airports, highways, coal imports, power plants, cement, gas and solar projects to Adani group at throw away prices even with single tenders away from any potential competitors.
Adani was facilitated with huge funds from public institutions like State Bank of India (SBI) and Life Insurance Cooperation (LIC) to acquire these assets. These public sector banks gave away loans running in to tens and thousands of crores of rupees on mere ‘good will’ of Adani group, without seeking any security guarantees. This became possible on account of Adani’s closest nexus with the Indian regime. Modi’s consent to Adani’s acquisition of mainstream media. Recently, Adani acquired a major share in the leading broadcaster NDTV — a move to silence liberal journalism and further shrink freedom of free speech. This was considered as blatant act to strengthen cronyism by liberals and opposition.
3.Future prospects for Adani and Indian market
According to Bloomberg, if the slide in asset prices continues and further shakes investor confidence in Adani’s empire, that would be a setback for India’s growth story at a pivotal time. Banks like HSBC Holdings Plc and companies like Apple Inc. are expanding in India to hedge their exposure to China, where a government crackdown on businesses and an erratic pandemic policy have turned investors wary. “The truth is that Adani’s scandal is not coming at the best of all times for India as China is reopening,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis SA. “Foreign investors are clearly watching.”
Eight of the 10 worst-performing stocks in the MSCI Asia Pacific Index this year are now Adani firms, while bonds issued by the Indian billionaire’s flagship company have fallen to distressed levels in US trading. The turmoil has not only hammered Adani Group shares but is also hitting banks that have given loans to the companies. Government-controlled State Bank of India has tumbled 11% since the Hindenburg report came out. Foreign institutional investors pulled a net $2 billion out of India’s stock market from the country Jan. 27 through Jan. 31, the biggest three-day selloff since March. The Adani-related headlines are generating a high level of negative attention, which could dampen investor appetite for Indian stocks.
Adani has to reassure the panicking investors to halt a stock market meltdown. The fallout from the Hindenburg report could engulf other large Indian businesses. In short time, Adani group is going to suffer big time loss as there are many committed uncompleted and greenfield projects.
