India: Modi-Adani model in crisis

Adani Modi

First published at CPI(ML) Liberation.

The cluster bomb dropped by Hindenburg Research on 24 January not only hit the target with crippling impact, but brought about cascading damage to many, including business entities and small players on the bourses, and created a perfect storm, both financial and political.

One of the key findings in the Hindenburg report is that certain companies in tax havens around the world have been investing almost exclusively in Adani Group stocks. These companies are alleged to be linked to or ultimately controlled by Vinod Adani, the elder brother of Gautam Adani. These investments, the report   alleged, surreptitiously violated Indian securities law[1], as they were being made by a ‘related party’, thereby reducing the number of shares held by investors other than company insiders/promoters to below the statutory minimum of 25%. Trading of shares between these tax-haven entities or ‘shell companies’[2], which is known as round tripping[3], artificially pumped up the valuation of the group’s listed companies. Moreover, by flaunting the highly overvalued asset base, the group projected itself as one of the world’s richest, most rapidly growing, and therefore apparently most reliable conglomerate and bagged a large number of contracts in infrastructure building not only in India but also in Bangladesh, Sri Lanka, Israel and Australia. Additionally, by mortgaging the shares at highly inflated market prices, they have been able to obtain from Indian and foreign lenders much larger amounts of loan than would have been possible without the overpricing.

This is how the largest corporate empire in Indian history was built up. The huge risks and tensions inherent in the secretive, fraudulent, unethical business model, developed conjointly with India’s most powerful politician, were waiting to implode sooner or later; the Hindenburg report only served to remotely detonate the dynamite box.

Almost instantaneously, there was a veritable stock-market rout of Adani Group of companies. Just before the publication of the Hindenburg report, the total wealth of Adani group exceeded ₹10 lakh crores; now it came down to less than ₹3 lakh crores. As a result, Adani was dumped out of the real-time Forbes rich list top 20, where he had been the global third, and Asia’s first. The flagship Adani Enterprises called off its ₹20,000-crore follow-on public offer (FPO) presumably under pressure from institutional investors in the FPO. Several Adani projects in foreign lands were cancelled or got stuck. Thanks to various crisis management measures including pre-payment of part of the debts, and the support extended by PSUs like LIC, Bank of Baroda and may be some help of his business connections and powerful political patrons, some of the Adani stocks later recovered a little, but they are still on shaky grounds.

The report also put the Modi government on the dock by alleging that the shoddy manipulative techniques seem to have been “enabled by virtually non-existent financial control”. It even remarked that Adani used his “immense power to pressure the government and regulators to pursue those who question him”, so journalists, citizens, and even politicians were “afraid to speak out for fear of reprisal”.

Hindenburg thus hit out, with great professional competence, against both the corporate giant directly responsible for the financial crime and its political mentor, enabler and accomplice in the crime.  In response, master strategist Modi spoke not a word against the American firm (he knew that would draw more attention to the irrefutable allegations) but chose to lampoon the opposition in and out of parliament. Clearly, his was a diversionary tactic.

The battle begins

But that was not an option for Adani, because he had to try and reassure his investors. In his case, offence was the only means of defending the indefensible. So, an adamant Adani immediately shot back with an angry 437-page rejoinder (more than four times bigger than the very concise Hindenburg report), complete with his trademark threat of legal action. Pat came a befitting reply from the US-based challenger:

“In the 36 hours since we released our report, Adani hasn’t addressed a single substantive issue raised. Instead, as expected, Adani has resorted to bluster and threats. ... Adani referred to our 106-page, 32000-word report, with over 720 citations and prepared over the course of 2 years, as “unresearched” and said it is “evaluating the relevant provisions under U.S. and Indian laws for remedial and punitive action against us. ... We would welcome it.... If Adani is serious, it should also file suit in the U.S. where we operate. We have a long list of documents we would demand in a legal discovery process.” (Emphases added).

This was clearly a call for a duel. But Adani did not have the guts to take up the gauntlet and go forward to file law suits, as he routinely did with upright Indian activist-journalists like Ravi Nair and Paranjay Guha Thakurta and magazines such as EPW and The Wire, people who did not have the clout and money-power to fight prolonged, multi-city, costly legal battles. The litigious, acrimonious tycoon realised that this time he was on sticky wickets. So, the Lion King from Gujarat immediately turned tail and took refuge in fake patriotism. Taking a leaf out of his mentor’s book, he tried to fan up a frantic popular backlash by describing the report as ‘a calculated attack on India’ and on ‘the independence, integrity and quality of Indian institutions.’ Indeed, parochial patriotism “is the last refuge of the scoundrel” as Samuel Jonson famously said way back in 1775.

Modi bhakts and Adani loyalists were quickly mobilized for joining the chorus. #IndiaStandsWithAdani and #IndiaINCSupportsAdani” started trending on social media. But there was hardly any serious content in defence of the conglomerate in credible print and digital media. Rather, reputed magazines and digital platforms came out with a steady stream of articles and interviews substantiating, elaborating on, and drawing longer-term inferences from, the Hindenburg exposé.

What independent analysts had to say

Wall Street Journal independently corroborated some of Hindenburg’s claims. It found a Vinod Adani link to a Mauritius based entity named Trustlink International that incorporated two other Mauritius entities. Bloomberg also found that Vinod Adani and his wife Ranjanben Adani are listed as the ultimate beneficiary owners of Endeavour Trade and Investment, a Mauritius-based entity which had previously been used by the Adani Group in its acquisition of the cement manufacturers Ambuja Cements and ACC from Switzerland’s Holcim. Then, a feature story by Forbes revealed previously unreported transactions involving offshore funds with ties to Vinod[4] Adani that ‘appear designed to benefit the Adani Group’.

A rather curious story emerged from the Signpost, a monthly online newspaper published by the Wikipedia community. It reported that Wikipedia had discovered a systematic effort by Adani-linked accounts, including some run by Adani employees, to manipulate information about the group on Wikipedia. It said ‘over 40… sockpuppets or undeclared paid editors…tr[ied] to con Wikipedia readers with non-neutral PR versions of [Adani Group] related Wikipedia articles’. Many of them ‘edited several…articles and added non-neutral material or puffery’.

Time carried a leader on February 9, 2023 titled “Why Adani Group’s troubles will reverberate across India”, with an apt and insightful subtitle: "The conglomerate is not just big; it also embodies the tensions in the country’s growth model". Billionaire investor and founder of Open Society Foundations, George Soros said Modi and Adani are “close allies; their fate is intertwined”, so the issue at hand “will significantly weaken Modi’s stranglehold on India’s federal government.” He also added that this might open the door to push for much-needed institutional reforms in India, ultimately causing a democratic revival in the country. His short comments evoked a disproportionately hostile reaction from the Indian government. Clearly, the powers that be were seeing red everywhere.

A detailed and incisive analysis was provided by Aswath Damodaran, a professor of finance at New York University. As Shubham Raj reports in Money Control, 1 March, 2023,

“Valuation guru Aswath Damodaran has said the Adani Group, as a whole, and Adani Enterprises, in particular, have too much debt. ...
“The high level of debt has done more harm than good for the group, the professor … said in a blog post on February 27. “The Adani Group collectively carries about three times as much debt as it should …

“In fact, … there is little, if any, benefit in terms of value added to Adani from using debt, and significant downside risk, unless the debt is being subsidised by someone (government, sloppy bankers, green bondholders). …

“A growing firm needs capital to fund its growth, and that capital has to come from equity issuances or new borrowing … When control becomes the dominant prerogative for those running the firm, they may choose to borrow money, even if it pushes up the cost of funding and increases truncation risk, rather than issue shares to the public (and risk diluting their control of the firm).”    

Beyond the Hindenburg report

Damodaran helps us with a key insight. Why do monopolists often prefer to go for excessive debt, knowing full well that it is a more costly and risky proposition, rather than issuance of equity even where there is high public demand for the latter? The short answer: penchant for control, absolute personal and familial control. Just like, one may add, in politics an autocrat will always place personal/dynastic/coterie dominance above everything else.

And this is how concentration of income and wealth in the hands of the super-rich and centralization of political power in a small coterie (ultimately in one despotic leader) go hand in hand. Conglomerates like Adani’s and Ambani’s have largely been built on the basis of massive privatization of state assets, market monopolization, and stifled competition—which in 2021 led to the richest 1% of Indians owning more than 40% of the country’s total wealth (much higher than 32% in the United States), according to an Oxfam report. The extreme inequality comes with an immense democratic decline (just look at the ruling party’s shameless refusal to even discuss the Hindenburg report in parliament), limitless corruption and incalculable mass suffering. A few glaring examples are cited below.

The Modi-Adani coal scam

Remember the UPA-era ‘Coalgate’ scandal? A 2014 Supreme Court ruling cancelled the illegal/irregular allocations of 204 coal blocks to state government-owned companies which, in turn, had been handing over the lucrative business to private entities at undisclosed prices under secret contracts. Taking office the same year, Modi government promised to usher in a clean, transparent arrangement to mine coal.  Yet, unfettered by the SC ruling as well as its own policy decisions that put many other private players at a disadvantage, it allowed the Adani Group to continue operations at coal mines in Chhattisgarh and Rajasthan. It did so through an intricate maze of secret administrative decisions and manipulations (e.g., by inserting exceptions or new provisions to, or reinterpreting certain laws, rules and norms).[5]

Tax benefits in India, super-profits in Bangladesh

Just twelve days before dates for parliamentary elections were announced, the Modi Government on February 25, 2019 cleared the way for an Adani project in Jharkhand to become India’s first standalone power project having the status and huge benefits (100 percent deduction in income tax for the first five years, faster clearances, exemptions from corporate taxes, excise duties, state goods and services tax etc.) of a Special Economic Zone. To enable this, the commerce ministry amended power-related guidelines for SEZs earlier that year. Bangladesh on the other hand would have to pay exorbitant price for power because the agreement between the two sides is scandalously discriminatory.  Prof Anu Muhammad, member-secretary of the National Committee to Protect Oil, Gas, Mineral Resources, Power and Ports and well-known economist, public intellectual, editor and political activist, says this very categorically, “There was clearly no negotiation here. Adani dictated these terms and Bangladesh went along with it for political gains.” The Modi hand behind Adani is easily discernible here.

Naturally there is a lot of dissension in Bangladesh against the Adani project. The same shocking episode of semi-colonial exploitation was repeated in another neighbouring country. Sri Lanka saw a “Stop Adani” protest in June last year. It was triggered when MMC Ferdinando, chairman of Sri Lanka’s Ceylon Electricity Board (CEB), informed a parliamentary panel that he was told by President Gotabaya Rajapaksa about PM Modi pressuring him to give the wind power project in Mannar directly to the Adani group.  Later, Mr Ferdinando, evidently under pressure, retracted his statement and tendered his resignation.

The buck stops at Modi: He must answer

As we go to press, the fraud on the nation is getting murkier and murkier. Hindenburg Research had already noted that three funds, including Elara India Opportunities Fund (Elara IOF), a venture capital fund managed by Elara Capital, engaged in circuitous trading and market manipulation of the Adani group stocks. On 15 March, The Indian Express came up with some additional details. Elara, along with the Adani Defence, is a promoter entity in a defence company -- Bengaluru-based Alpha Design Technologies Private Limited (ADTPL). The latter in turn works closely with the Indian Space Research Organisation and Defence Research and Development Organisation and has a Rs 590-crore contract with the Union government. The implications are alarming. When a dubious foreign entity, jointly with a scam-tainted Adani company, gains access to sensitive DRDO and ISRO operations, is not there a risk of India’s national security being compromised?

Instead of conducting a proper investigation into the monumental scam, the government is hell-bent on preventing or scuttling any probe. The probe panel constituted by the Supreme Court is most welcome, but it is concerned only about investor protection and not about basic questions like whether, as alleged by Hindenburg, there is a Modi-Adani nexus behind the scam. So, it is left to us, the people of India, to bring pressure to bear on the government, to hold it accountable for not just this particular scam, but the disastrous rise of crony capitalism in our country.

The making of Adani empire: It takes two to tango

How does one explain the lightning speed of Adani’s ascent? The key to the answer lies in the political economy of crony capitalism -- one of the most noxious and destructive forms of decadent monopoly capitalism, which Vladimir Ilyich Lenin had defined as the economic essence of the imperialist stage of capitalism -- as it reached its Zenith in India under Modi’s stewardship.
Three distinct phases of the sordid saga are easily discernible.

2003 – 2014: Rise of the so-called Gujarat model of development.

A good many heavyweight businesspersons in India joined the nationwide and worldwide criticism of Modi, then the chief minister of Gujarat, for his role in the 2002 riots. This was only natural, because irrespective of their personal views about communal and other social issues, as businesspeople they would always demand a peaceful law and order situation. But Gautam Adani, then a nondescript diamond and jewellery merchant, cleverly used this opportunity to try and promote his own career. Jointly with other Gujaratis including rising tycoon Mukesh Ambani, he helped the Gujarat government organise the first “Vibrant Gujarat: Global Investors’ Summit” during Navaratri, 2003. The summit became a regular biennial event and helped Modi reinvent himself as the pro-business face of modern economic progress – as the architect of a ‘Gujarat model’ – rather than one whose hands were drenched in blood. Meanwhile, Adani, among others, was granted lucrative concessions that allowed his wealth and stature to grow exponentially.

2014 – 2022: Upgrading and Extending ‘Gujarat model’ to ‘New India’

Adapting a provincial model to the national plane demanded a lot of improvisation. Under the guidance and active support of RSS, Modi led the charge on the political front, pushing for constructing an aggressive Hindu Rashtra; delegating to Ambani, Adani & Co. the economic agenda: corporatisation of all that exists, including PSUs, as the road to ‘national prosperity’. In 2018, a controversial decision by the Indian government allowed Adani to bid—and win—tenders for six airports, although he had no prior experience in operating airports. The decision turned his group into one of the country’s biggest private airport operators overnight. Adani also won the largest number of government tenders and infrastructure projects in ports, roads, railways, fossil fuels, and green energy across the country. Modi called this “nation-building” and Adani has been parroting this mantra ever since, often with a lot of patriotic hype and populism. Thus, Adani has been able to sync his business model with the Modi brand of politics much better than his peers. And here lies the roots of his exceptional success.

January 2023 – The Tango in Trouble

About a year ahead of the crucial parliamentary elections and following closely in the wake of the BBC documentary, the Hindenburg report threw down a serious challenge to the composite Modi-Adani model. Given the strong headwinds in Indian and global economies and newer revelations like the recent one from The Indian Express, the difficulties are likely to get further complicated in the months to come.


[1] The promoters or original owners of public limited companies are not allowed to own more than 75% of equity shares, so that they may not increase or decrease the share prices at will.

[2] A shell company is a firm that has a shell or outer appearance of a business entity, but is empty within -- one that exist only on paper, with no or little real business.

[3] Round tripping is a practice where funds are transferred from one country to another and transferred back to the country of origin for purposes like money laundering or to get the benefits of tax concession/evasion in countries like Mauritius which are known for low taxes, lax tax regulations, etc. Also, there have been instances (the Adani group being one) where the money routed back was used to manipulate stock prices of listed Indian companies. Due to these reasons, such transactions are prohibited, except without prior approval of the RBI on case-to-case basis. However, following Modi’s second coming in 2019, a government-appointed High-Level Advisory Group (HLAG) observed, “the baggage of round tripping cannot be used to stifle a major sector any more than using the risk of a traffic accident to stop construction of a key highway”. It recommended amending the law to introduce the aspect of round tripping in the Indian regulatory framework. The previous strict approach was thus somewhat liberalized in the name of ease of doing business.

[4] For a long time, the Adanis officially denied that Vinod held any position in the group. But on 17 March it took a 180 degree turn and said that Vinod was one of the promoters.

[5] For details, see Modi govt allowed Adani coal deals it knew were ‘inappropriate’ written by Shreegireesh Jalihal and Kumar Sambhav (both are members of The Reporters’ Collective) and published in AL JAZEERA, 1 Mar 2023.