Impact of US fraud charges against him on India’s economy and politics

Just a few weeks ago Gautam Adani, one of the world’s richest men, celebrated Donald Trump’s election victory and announced plans to invest $10bn (£7.9bn) in US energy infrastructure projects. announced.

The 62-year-old Indian billionaire and close ally of Prime Minister Narendra Modi, whose vast $169 billion empire spans ports and renewable energy, is now putting his ambitions at risk at home and abroad. is facing possible U.S. fraud charges.

Federal prosecutors have accused him of orchestrating a $250 million bribery scheme and concealing it to raise funds in the United States. They allege that Mr. Adani and his top executives paid bribes to Indian officials to win contracts worth $2 billion over 20 years. Adani Group denied the allegations, calling them “baseless.”

But this is already hurting the group and the Indian economy.

The Adani group of companies lost $34 billion in market capitalization on Thursday, bringing the combined market capitalization of its 10 companies to $147 billion. Adani Green Energy, the company at the center of the allegations, also said it would not move forward with a $600 million bond issue.

Then there are questions about the impact the charges will have on Indian business and politics.

India’s economy is deeply tied to Mr. Adani, the country’s leading infrastructure tycoon. He operates 13 ports (30% market share), 7 airports (23% of passenger traffic) and India’s second largest cement business (20% of market).

Adani owns six coal-fired power plants and is India’s largest private power holder. At the same time, it pledged to invest $50 billion in green hydrogen and operate an 8,000 km (4,970 mile) natural gas pipeline. He is also building India’s longest highway and redeveloping India’s largest slum. He employs more than 45,000 people, but his business impacts millions of people across the country.

Mr Adani’s global ambitions include coal mines in Indonesia and Australia, airports and energy projects in Kenya and Morocco. The group is eyeing more than $1 billion in infrastructure projects across Tanzania and Kenya.

Adani’s portfolio closely reflects Prime Minister Modi’s policy priorities, starting with infrastructure and recently expanding to clean energy. He has been successful despite critics labeling his business empire crony capitalism. Mr. Modi points out his close relationship with Mr. Modi, both as the chief minister of Gujarat, their home state, and as the prime minister of India. (Like other successful businessmen, Mr. Adani has built relationships with many opposition leaders and invested in their states.)

“This (bribery allegation) is big. Mr. Adani and Mr. Modi have been inseparable for a long time. This is going to have an impact on India’s political economy,” he said, who has written extensively about the business group. Paranjoy Guha Thakurta, an Indian journalist, said:

The crisis comes as Mr. Adani struggles to rebuild his image after a 2023 report from U.S. short-seller giant Hindenburg Research accused Mr. Adani’s conglomerate of decades of stock price manipulation and fraud. This is also due to the fact that he has spent many years there. Although Adani denied the allegations, the allegations caused a market selloff and prompted an ongoing investigation by India’s market regulator SEBI.

“Mr. Adani has been trying to restore his image and has tried to show that the previous allegations of fraud raised by the Hindenburg Group are not true and that his company and business are actually doing very well. There have been many new developments over the past year or so. “This is just a body blow for the billionaire, who has successfully brushed off any potential damage from previous allegations,” Michael from the Wilson Center, an American think tank, said in a statement.・Mr. Kugelman told the BBC.

For now, domestic financing could be difficult for Mr. Adani’s cash-intensive projects.

“The market reaction shows how serious this is,” independent market analyst Ambareesh Baliga told the BBC. “Adanis will continue to secure funding for major projects, but there will be delays.”

The latest charges could threaten Adani’s global expansion plans. He is already being challenged in Kenya and Bangladesh over plans to take over an international airport and controversial energy deals. “This (bribery charge) will stop any international expansion plans linked to the US,” Nirmalia Kumar, Lee Kong Chian Professor at the Singapore Management University, told the BBC.

What’s next? Politically, opposition leader Rahul Gandhi has rightly called for Adani’s arrest and promised to disrupt Parliament. “Bribes to government officials in India are not news, but the amounts mentioned are surprising. I suspect the US still has some names of the intended recipients. .This could have an impact on the Indian political scene. There will be more to come.” Kumar believes.

Adani’s team will undoubtedly put together a top-notch legal defense. “Right now all we have is the indictment, and there’s still a lot to unravel,” Kugelman said.

While the U.S.-India business relationship may face scrutiny, it is unlikely to be significantly affected, especially given Adani’s recent $500 million deal with the U.S. for a port project in Sri Lanka, Kugelman said. he says. Despite serious doubts, the extensive business relationship between the United States and India remains strong.

“The business relationship between the US and India is very extensive and multifaceted. Despite the very serious allegations against a person who plays such a vital role in the Indian economy, we are not aware of the impact this will have on the relationship. I don’t think there’s any need to overestimate it,” Kugelman said.

And despite the U.S.-India extradition treaty, whether Mr. Adani will be targeted is uncertain, depending on whether the new administration allows the case to proceed. Barriga believes this is not doom and gloom for Adani. “That said, I still think foreign investors and banks will support them in the same way they did post-Hindenburg, given that they are part of a very important and well-performing sector of the Indian economy. “There is,” he says.

“The feeling in the market is that once the (Donald) Trump administration takes office, this problem will probably blow over and be resolved.”