Adani’s fall has brought renewed scrutiny to the billionaire’s close ties to Modi

The swift ouster of Indian billionaire Gautam Adani has sparked renewed scrutiny of the tycoon’s close ties with Indian Prime Minister Narendra Modi.

Adani lost his crown as Asia’s richest man in days when his fortune collapsed following a report by US short selling firm Hindenburg Research in late January over fraud allegations.

The fallout has impacted global markets, and last week MSCI reduced its weighting from four Adani stocks in the MSCI Emerging Markets Index.

India’s top industrialist has also drawn the attention of the country’s regulator, the Securities and Exchange Board, to India. The market watchdog is now launching an investigation into Hindenburg’s allegations against the Adani business empire.

The debacle exposed the longstanding relationship between India’s super-rich corporate titans and the political elite.

Hindenburg’s report has further sharpened focus on the billionaire’s close ties to Modi.

“Adani has accomplished this gargantuan feat with the help of government enablers and a cottage industry of international companies that make these activities possible. These corruption issues permeate multiple levels of government,” the report said.

In a rebuttal spanning over 400 pages, the Adani group dismissed these allegations, calling them a “calculated attack on India”.

The company did not respond to CNBC’s request for comment. The prime minister’s office did not respond to a request for comment.

“crown capitalism”

India has always struggled with “buddy capitalism,” but Modi and Adani’s cozy relationship has “taken it to another level,” according to Ashok Swain, head of the Department of Peace and Conflict Studies at Uppsala University in Sweden.

“Modi and Adani have probably the closest relationship a politician can have with a businessman; certainly it had never happened in India. Their rise was common,” added Swain, a veteran observer of Indian politics.

Adani’s family-run conglomerate ranges from airports and seaports to coal, renewable energy and media.

Modi and Adani probably have the closest relationship a politician can have with a businessman.

Ashok Swain, Indian political observer

India’s “chosen growth model” requires a “certain degree of crony capitalism,” said Milan Vaishnav, director for South Asia at the Carnegie Endowment for International Peace.

Vaishnav added that the Modi government’s industrial policy is focused on building national industrial champions, and Adani has been the “poster child” to date.

“There is no question that Adani enjoys this position today, at least in part because of his proximity to the prime minister,” he said, “but also because of the perception that he is capable of delivering projects on a large scale.”

A “fruitful relationship”

Adani and Modi’s relationship is long-standing.

Both men hail from India’s western state of Gujarat, where Modi was prime minister in 2001. Adani was an early supporter of Modi’s political aspirations and championed the Indian leader’s growth vision for India.

Modi then flew on an Adani jet In 2014 he was elected to the national office.

“That Adani and Modi forged a close bond during their years in Gujarat is an open secret,” Vaishnav noted.

“There is no question that the fortunes of these two men are linked,” he said, “particularly in recent years as the government has increased capital spending to push infrastructure together.”

The Adani Group is a key player in Modi’s ambitions to transform India into a $5 trillion economy, said Medley Advisors’ Alim Remtulla.

Both men embody the “Gujarat growth model,” he said, citing the close ties between big business and the government.

“Infrastructure, in particular, is a key element in Modi’s nation-building plans. Adani (Group) is one of the few companies in the country that can implement these large infrastructure projects across the country,” Remtulla told CNBC’s Squawk Box Asia.

“Similarly, Adani needs Modi’s implicit support to raise funds for these capital-intensive projects. So this is a long and fruitful relationship that goes back decades,” he said.

attacks by the opposition

Hindenburg’s report turned out to be a political gift for the Indian opposition, which for years has berated Modi for his ties to Adani. With national elections looming next year, opposition critics have seized upon the report to attack Modi and his party.

India’s main opposition party in Congress has staged protests and called for an investigation into Hindenburg’s allegations. Opposition critics have also accused Modi’s government of doing unfair favors to Adani’s business empire.

“The whole country has observed a close connection between the Adani Group’s commercial interests and your (Modi’s) eagerness to help him with government policies. This pattern is consistent across sectors, from agriculture to energy to transportation,” Jairam Ramesh, the Congress party’s secretary-general, said in a statement last week.

In 2018, the Modi government reportedly changed the rules that allowed Adani to bid on six airport bids — and eventually win. It was met with outrage amid criticism of nepotism. The government has denied these allegations.

After Modi became prime minister, Adani continued to benefit from the relationship, but on a much larger scale, Swain said.

“Besides issuing licenses for the airports and ports, changing the environmental regulations for Adani’s coal mines and adjusting the regulations in favor of Adani’s shares in special economic zones, Modi has helped Adani’s companies in many ways,” he said.

In his speech to parliament last week, the Prime Minister appeared unimpressed by the opposition’s criticism and did not mention Adani at all.

“The blessing of 1.4 billion compatriots is my greatest ‘Suraksha Kavach,'” Modi said, using a Hindi term meaning “protective shield.”

“And you can never breach this security shield with the weapons of abuse and lies,” he said, while opposition lawmakers chanted “Adani, Adani.”

Adani has denied claims that he received personal favors from Modi, calling such claims unfounded.

“Prime Minister Modi and I are from the same state. It makes me an easy target for such baseless accusations,” the tycoon said, according to a January report in India Today.

“My professional success is not due to a single leader, but to the political and institutional reforms initiated by multiple leaders and governments over a long period of more than three decades,” he said in the report.

Political damage?

Politically, it is difficult to predict what impact the new test will have on Modi’s popularity and his ruling Bharatiya Janata Party, observers said.

“I am skeptical that the Adani crisis will personally cloud Modi or hurt the BJP’s electoral prospects,” Carnegie’s Vaishnav said.

Still, the relationship between Modi and Adani is “so long and strong” that it will be difficult for the Prime Minister and his party to emerge unscathed from this crisis, Swain added.

“Adani’s close association with Modi has compelled his followers and India’s Hindu nationalists to defend (Adani). for the past nine years. It won’t be that easy to distance yourself from Adani now,” he said.

“However, they will try to attribute Adani’s ouster to an international conspiracy against Modi,” he added.

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