Adani Group, a global business conglomerate, has had a meltdown of its shares in the last week in the wake of the Hindenburg report published on the firm’s brazen stock manipulation and fraud practices in the last decade. The report accused Gautam Adani, Group’s founder, has amassed over $120 billion, of which over $100 billion has been accumulated in the last three years.
Since the publication of the report, Adani Group has also called off a Rs 20,000 crore fully subscribed FPO (follow-on public offer), claiming the volatility in the stock market over its price. Ever since Adani Group has accrued a loss of over $100 billion in stocks and other assets. More importantly, the company has come under the radar of the countries where Adani has invested—which includes investments in the ASEAN region, South Asian countries, Israel, and Australia, to name a few.
What are the implications on Indian foreign policy?
Foreign Institutional Investments
The immediate implication of the Hindenburg report has been the FII’s (Foreign Institutional Investor) faith 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 will likely take over foreign investors’ current mood on 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.
Regulatory Scanner
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 Security and Investments Commission has announced that it would look into the “allegations against Adani” and determine further possibilities for the firm. Similarly, Sri Lanka has raised red flags about India’s assertion over Sri Lanka to give the project to the Adani firm.
Due to the Hindenburg report, Bangladesh has asked Adani to revise their purchasing price of the fuel, which would mean that Adani Power would receive a significantly lower amount than initially quoted. While it is evident that Adani has had a great fortune in recent years, the Hindenburg report is likely to cause a dent in his firm’s prospects abroad. If this trend persists, the other firms abroad may also come under the scanner.
Adani Meets Foreign Leaders
Gautam Adani, former India’s wealthiest person and the former World’s third-richest man, has had a great working relationship with the Indian Government. He has been instrumental in partnering with firms abroad—from Asia to Africa to 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 of—if not all—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 considered a balancing act by India’s firms as opposed to investments in China.
Touted as “investment diplomacy”, Adani firms have established themselves in Australia, Malaysia, Israel, UAE, Bangladesh and Sri Lanka. With Hindenburg, Adani is likely to cause India’s image a huge blow in terms of its foreign policy relations with the countries where Adani firms are established. The blow on Adani firm has come when India is hosting the G20 group of leading economies. There will be significant pressure on India to push back against the Adani Group.
A Way for New Partners
The Adani downfall would also mean that the 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 less scope for the government to manoeuvre between Adani and the foreign pressure over Adani’s firms.
However, this is also an opportunity for Government to renavigate its business side of foreign relations by pushing for newer business partners in Tata and Reliance in their quest for foreign partnership. It will also give greater leverage for India’s government 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 the allegations of fraud and manipulation of stocks by the Adani Group. While India’s finance minister Nirmala Sitharaman has noted that 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 affirm investors’ faith by pushing forth an investigation into Adani ventures. More importantly, India must use its foreign investment opportunities by pushing forth multiple firms rather than allowing one firm to control companies. The current crisis has very much hit India’s image as an emerging global power. It is yet to be seen how India Inc. manages to rise above the crisis and further gain foreign investors’ confidence. More importantly, India must ensure that strict policy checks and security checks are in place for the companies so that there will be less economic meltdown due to such allegations in future.
The Adani crisis will not greatly impact India’s relationship with other countries. The working relationship with the neighbourhood countries, ASEAN partners, and countries in the periphery will sustain. Given the weak economies of South Asia, India is likely to exert pressure on them to sustain Adani deals. However, India must push forth greater economic confidence—in light of the current crisis—among its partners by pushing forward a positive image of India as an investment hub for foreign companies. In light of India’s hosting of the G-20, India must push newer Indian companies for investment opportunities abroad.
Read the full Hinderberg report here:
Other References:
https://www.ft.com/content/9840aa4e-3270-4f3b-abe4-3f6838a542d0
Cover Photo: RegionalQueenslander, CC BY-SA 4.0, via Wikimedia Commons
Excellent work!
Thank you so much!