The Adani Group, a global business conglomerate, has experienced a significant decline in its shares over the last week, following the publication of the Hindenburg report, which exposed the firm’s alleged brazen stock manipulation and fraud practices over the past decade. The report accused Gautam Adani, the group’s founder, of amassing over $120 billion, of which more than $100 billion has been accumulated in the last three years.
Since the publication of the report, the Adani Group has also called off a fully subscribed Rs 20,000 crore follow-on public offer (FPO), citing volatility in the stock market as the reason for its cancellation. Ever since Adani Group has accrued a loss of over $100 billion in stocks and other assets. More importantly, the company has come under scrutiny from the countries where Adani has invested, which include investments in the ASEAN region, South Asian countries, Israel, and Australia, among others.
Implications for Indian foreign policy
The immediate implication of the Hindenburg report has been a decline in the faith of FII’s (Foreign Institutional Investors) in the Indian economy. Adani, who was once claimed to be the “darling” of FIIs, has now caused a dent in foreign investor confidence. Recently, India has been an alternative to China for global investors.
However, the Adani Saga is likely to alter foreign investors’ current mood on the Indian Market and Businesses. Since the Hindenburg report—and the firm’s inability to respond to allegations—global funds have pulled out over 1.45 billion dollars from stocks in Indian companies in two days. Therefore, foreign investment confidence is likely to have the biggest impact.
Since Adani and his firm have invested worldwide, Adani Group will more likely come under scrutiny by various country regulators. Following the Hindenburg report, the Australian Securities and Investments Commission has announced that it will investigate the “allegations against Adani” and explore further possibilities for the firm. Similarly, Sri Lanka has raised concerns about India’s assertion over Sri Lanka regarding the project being awarded to the Adani firm.
Following the Hindenburg report, Bangladesh has requested that Adani revise its purchasing price for the fuel, which would result in Adani Power receiving a significantly lower amount than initially quoted. While it is evident that Adani has experienced great fortune in recent years, the Hindenburg report is likely to cause a dent in the firm’s prospects abroad. If this trend persists, other firms abroad may also come under scrutiny.
Gautam Adani, India’s former wealthiest person and the world’s third-richest man, has had a strong working relationship with the Indian Government. He has been instrumental in partnering with firms abroad, from Asia to Africa and the Americas. Amid the crisis, Adani Group has also acquired Strategic Haifa port in Israel, where Adani—himself—met with Israeli Prime Minister Benjamin Netanyahu.
Adani has met with most, if not all, of the presidents and prime ministers of visiting countries. Recently, he has been a prime figure in business/ economic partnerships with countries abroad. He has been seen as instrumental in shaping India’s business side of Act-East, Neighbourhood First, and Act-West policies. In Sri Lanka, Adani’s investments were viewed as a balancing act by India’s firms, in contrast to investments in China.
Touted as “investment diplomacy”, Adani firms have established themselves in Australia, Malaysia, Israel, the UAE, Bangladesh and Sri Lanka. With Hindenburg, Adani is likely to deal a significant blow to India’s image in terms of its foreign policy relations with countries where Adani firms are established. The blow to the Adani firm has come at a time when India is hosting the G20 group of leading economies. There will be significant pressure on India to push back against the Adani Group.
The Adani downfall would also mean that other firms in India, such as those of Reliance, Tata, and others, will gain significant traction in building future partnerships abroad. Since Gautam Adani’s rise must be contextualised with the rise of Narendra Modi’s BJP government, there will be relatively very little scope for the government to manoeuvre between Adani and the foreign pressure over Adani’s firms.
However, this is also an opportunity for the Government to re-navigate its business side of foreign relations by pushing for newer business partners, such as Tata and Reliance, in their quest for foreign partnerships. It will also give India’s government greater leverage to navigate through crises such as this.
What are the future prospects?
In light of the current crisis, India should officially initiate an investigation into allegations of fraud and stock manipulation by the Adani Group. While India’s Finance Minister Nirmala Sitharaman has noted that the Adani Group’s FPO withdrawal “will not impact India’s economy,” it is imperative for the Government to push for an official investigation into the allegations. It will bolster investors’ confidence in India’s market and business opportunities. The world will watch how India handles its Adani affair.
In the year when India hosts the G-20, New Delhi must reaffirm investors’ faith by conducting an investigation into Adani ventures. More importantly, India must utilise its foreign investment opportunities by promoting multiple firms rather than allowing a single firm to dominate the market. The current crisis has significantly impacted India’s image as an emerging global power. It remains to be seen how India Inc. manages to rise above the crisis and further gain the confidence of foreign investors. More importantly, India must ensure that strict policy checks and security checks are in place for companies, so that there will be less economic meltdown due to such allegations in the future.
The Adani crisis is unlikely to significantly impact India’s relationship with other countries. The working relationship with neighbouring countries, ASEAN partners, and peripheral countries will be sustained. Given the weak economies of South Asia, India is likely to exert pressure on them to sustain Adani deals. However, India must foster greater economic confidence—in light of the current crisis—among its partners by projecting a positive image of India as an investment hub for foreign companies. In light of India’s hosting of the G-20, India must encourage newer Indian companies to pursue investment opportunities abroad.
Read the full Hinderberg report at this link.
Cover Photo: RegionalQueenslander, CC BY-SA 4.0, via Wikimedia Commons
Excellent work!
Thank you so much!