What really worries Indians about Adani’s empire


When the Adani group mobilized to defend itself against allegations made by US-based short sellers Hindenburg Research that it was “involved in a brazen stock manipulation and accounting fraud scheme over the decades,” the election of the Decors more convincing than the denial. Chief Financial Officer Jugeshinder Singh stood in front of a giant Indian flag that made him look more like a government official than an embattled CEO. The message was clear: if you (a “foreign entity,” as the company says) come to Adani, you come to India.

Unfortunately, that’s not entirely wrong. The Adani Group – with investments in ports, roads, rail, airports and electricity – is now a crucial vehicle for India’s economic ambitions under Prime Minister Narendra Modi. Adani and Modi are close and have been for two decades.

But talk of nepotism misses the point. If Adani didn’t exist, the Indian government would have had to invent it: the development model now chosen requires risk-taking “national champions” like the Adani Group. What else did you expect? Finally, like so many others, India has turned away from traditional market-supporting structural reforms in favor of old-fashioned industrial policies.

Much of what Hindenburg says in his report is not news to Indian investors. They have known for years that Adani Enterprises Ltd., the linchpin of the Adani empire, is overloaded with debt and that the ultimate source of its funding is remarkably opaque. Adani stocks are generally hardly traded; Few here will be willing to believe that Adani companies were out to defraud retail investors, even when both public banks and state-owned insurers were heavily betting on them.

No, the real fear of Indians is different – that Gautam Adani and his companies simply cannot do what they promise. Can they build the roads they promised, improve the ports they got, get the airports they won in a bid? So far nobody has done that.

Adani’s companies have not only been entrusted with a large part of India’s infrastructure. They have become the government’s first choice as partners in several sectors that our industrial policy-makers have decided are priorities for India’s growth.

Does the government want Indian companies to set up factories that make solar panels? Adani will comply. Has the Prime Minister set a tough target for renewable energy? Adani will sign up to meet it. Are we concerned that we are not independent when it comes to weapons? Adani will commit to creating an “indigenous defense ecosystem under ‘Make in India'”. Are Policy Makers Concerned About the Semiconductor Supply Chain? Gautam Adani will “promise a value chain that is fully indigenous and aligned with our nation’s geopolitical needs.”

Our concern is not where the Adani Group is raising the capital for these ambitions. India is not necessarily lacking in capital to achieve some of these goals. However, it certainly lacks implementation capacity. That’s what the Adani companies promised. The public sector is too inefficient to build what India needs; the rest of the private sector is too worried about political risk.

The public sector will not become competent any time soon. Meanwhile, the kind of regulatory, legal, and administrative reforms that would reduce political risk are off the table. So who but Adani will build what the world’s most populous country needs?

No one else in Modi’s India has that specific mix of confidence in government support, ability to deal with Byzantine regulations, and willingness to risk vast sums of money. Some fear Adani is too big to fail. It’s not him. But he might be too unique to fail.

Wherever the money may have come from – public sector banks, pension funds, faceless pools of offshore capital – what matters to India’s growth is how productively it is spent. Effective oligarchs can be dangerous to a country, and even more so when they are corrupt – just ask Russia. Incompetent oligarchs are disastrous.

If Adani’s companies can only deliver a fraction of what he promised, they may even grow to the ratings they already achieved on paper over time. When they fail, many more perish than its investors; Adani will go with him to bring down India’s industrial policy. Your big bet on him will then backfire on India’s banks, on India’s politicians and on India’s citizens.

More from the Bloomberg Opinion:

• What Adani shorts can learn from Elliott: Shuli Ren

• Adani Saga questions investor confidence in India: Andy Mukherjee

• US-India relations are not like in a Bollywood film: Bobby Ghosh

This column does not necessarily represent the opinion of the editors or of Bloomberg LP and its owners.

Mihir Sharma is a columnist for the Bloomberg Opinion. He is a senior fellow at the Observer Research Foundation in New Delhi and the author of Restart: The Last Chance for the Indian Economy.

For more stories like this, visit bloomberg.com/opinion


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