What really worries Indians about Adani’s empire

By Mihir Sharma

When the Adani Group mobilized to defend itself against accusations — leveled by US-based short sellers Hindenburg Research — that it had “engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades,” the choice of décor was more persuasive 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 company executive. The message was clear: If you (a “foreign entity,” in the company’s words) come after Adani, you’re coming after India.

Unfortunately, that’s not entirely untrue. The Adani Group — with investments in ports, roads, rail, airports, and power — 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.

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But talk of cronyism misses the point. If Adani didn’t exist, the Indian government would have had to invent him: The development model we have now chosen requires risk-taking “national champions” such as the Adani Group. What else did you expect? After all, like so many others, India has turned away from traditional market-supporting structural reform in favor of old-fashioned industrial policy.

Much of what Hindenburg put in its report doesn’t count as news for Indian investors. They have known for years that Adani Enterprises Ltd., the fulcrum of the Adani empire, is loaded down with debt, and that the ultimate source of its funding is remarkably opaque. Adani stock is generally thinly traded; few here will be willing to believe that Adani companies set out to defraud retail investors, even if both public sector banks and state-owned insurers have bet heavily on them.

No, Indians’ real fear is something else — that Gautam Adani and his companies simply cannot do what they say they will. Can they build the roads they have promised, improve the ports they have been given, maintain the airports they won in a bid? Until now, nobody else has been able to do so.

Adani’s companies have not just been entrusted with a wide swathe of India’s infrastructure. They have become the government’s first choice as partners in multiple sectors that framers of our industrial policy have decided are priorities for India’s growth.

Does the government want Indian companies to set up factories that make solar panels? Adani will oblige. Has the prime minister set a stiff renewable energy target? Adani will sign up to meet it. Are we worried we aren’t self-reliant in weaponry? Adani will undertake to create an “indigenous defense ecosystem under ‘Make in India.’” Are policy makers worried about the semiconductor supply chain? Gautam Adani will promise “a value chain that is fully indigenous and aligned with the geopolitical needs of our nation.”

Our worry is not where the Adani Group is picking up the capital in service of these ambitions. India is not necessarily short of capital to achieve some of these ends. It is, however, certainly short of implementation capacity. This is what Adani’s companies has promised to supply. The public sector is too inefficient to build what India needs; the rest of the private sector is too concerned about political risk.

The public sector is not going to turn competent any point soon. Meanwhile, the sort 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?

Nobody else in Modi’s India has this specific mixture of confidence in government support, ability to navigate byzantine regulations, and willingness to risk enormous sums of money. Some worry that Adani is too big to fail. He isn’t. But he may be too unique to fail.

Wherever the money may have come from — public sector banks, pension funds, faceless pools of offshore capital — what matters for India’s growth is how productively it is spent. Effective oligarchs might be dangerous for a country and, if they’re corrupt, even more so — just ask Russia. Inept oligarchs are calamitous.

If Adani’s companies can deliver a fraction of what he has pledged, then perhaps, in time, they might even grow into the valuations they have already achieved on paper. If they fail, then a lot more goes down than his investors; Adani will take down India’s industrial policy with him. Their big bet on him will then rebound on India’s banks, on India’s politicians, and on India’s citizens.