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What does the biggest corporate scandal in years mean for India Inc?

Scandal engulfed one of India’s largest conglomerates at the end of January, when a report by a US-based short seller alleged massive corporate fraud. As well as sending shares in Adani Group companies tumbling and heightening fears of wider economic contagion, the report ignited a political scandal, with opposition parties highlighting Prime Minister Narendra Modi’s close ties to Adani Group owner Gautam Adani and accusing the government of protecting the conglomerate. While the scandal looks unlikely to seriously endanger Modi’s political supremacy, the controversy raises uncomfortable questions about the ability of India’s regulators to ensure transparency and accountability.

Reuters on 10 February reported that the Securities and Exchange Board of India (SEBI) had launched an investigation into alleged irregularities in an aborted share sale by the flagship company of Indian conglomerate Adani Group. India’s market regulator will reportedly probe whether the USD 2.5 billion share sale involved any violations of Indian securities laws or conflict of interest, in light of allegations that two entities that participated as anchor investors may have had links to Adani Group.[1]

The news followed a turbulent two weeks, both for Adani Group – India’s largest operator of ports and airports and a key green energy investor – and for “India Inc” (a term widely used in Indian public to refer to India’s government and corporate sectors). The publication of a report by US-based short-seller Hindenburg Group on 24 January, accusing Adani Group of the “largest con in corporate history” involving “brazen stock manipulating and accounting fraud”, sent the conglomerate’s shares tumbling, igniting fears of a wider economic fall-out and triggering a political storm.

The report made several serious allegations, including that Adani Group had used shell companies in tax havens (primarily Mauritius) to manipulate the share prices of its listed entities, inflating their value over the course of decades. It also accused Adani Group companies of taking on unsustainable debt, partly by pledging their own inflated stock as collateral for loans.[2]

Adani Group on 29 January issued a 400-plus page report rebutting the claims. The response appealed to economic nationalism, branding the short-seller report a “calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India”.[3]

It was not enough to calm the markets. By 10 February, Adani Group’s seven listed entities had lost more than USD 110 billion, amounting to around half their market value before publication of the report. In addition, Adani Group’s flagship entity Adani Enterprises on 1 February abruptly cancelled its planned USD 2.5 billion stock offering.[4]

Meanwhile, the controversy stirred up India’s opposition parties, whose noisy protests demanding a bipartisan investigation into the scandal resulted in the adjournment of both houses of parliament on 2 February and on several following days.[5] Opposition politicians highlighted Indian Prime Minister Modi’s alleged close ties with Adani Group founder Gautam Adani – disrupting his appearance in parliament on 9 February with chants of “Modi-Adani bhai bhai” (Modi-Adani brothers, brothers).[6]

Modi’s closest allies within the government have gone into damage control mode, with Home Minister Amit Shah on 14 February claiming Modi’s Bharatiya Janata Party (BJP) had “nothing to hide”. Modi himself has remained tight-light on the scandal.


Opposition politicians and government critics have long accused Modi of favouring the Adani Group, a conglomerate spanning the energy, logistics and media sectors, which was the fourth largest business group in India by both assets and income in 2022.[7]

Modi and Gautam Adani are both from the state of Gujarat, and their fortunes have been closely intertwined. Modi made his political reputation spearheading the so-called “Gujarat model” of market-led economic development while serving as state chief minister from 2001 to 2014. That period coincided with the growth of Adani’s business empire on the back of his development of Gujarat’s Mundra Port, India’s largest commercial deep-water port.[8]

Modi and Adani were also perceived to be personally close. When the BJP won the general elections in 2014 and Modi was appointed prime minister, he flew to Delhi on Adani’s private jet. The businessman frequently accompanied Modi on diplomatic trips abroad in subsequent years.[9]

Moreover, Adani Group’s heavy focus on infrastructure meant it flourished in Modi’s India. The conglomerate positioned itself as building “a new India” and fuelling India’s economic growth – cleverly dovetailing with the government’s nationalist messaging while profiting from its infrastructure development drive.[10]

However, allegations of shady dealings have surrounded Adani Group for years, not least, that Modi’s government had conspired to give the conglomerate a leg-up. For example, when six airports were privatised in February 2019, Adani Group won the tenders to operate all of them. Indian media reports at the time alleged that the bidding process had been designed in a way that favoured the conglomerate – which had no experience running airports – while ignoring recommendations on tender rules submitted by several ministries.[11] Later in June 2022, the head of Sri Lanka’s state-owned power company in claimed to a parliamentary panel that Modi had pressured the Sri Lankan prime minister to award a power project to Adani Group (only to later retract the statement and resign).[12]

Adani has returned the favour – frequently praising Modi in public, and in the second half of 2022, initiating a hostile takeover of the only remaining prominent television broadcaster openly critical of the government.[13] The move tightened Modi’s hold over the domestic media, which is viewed as largely pliant. In September 2022, Adani committed to investing USD 100 billion in India over the next ten years, mostly in support of Modi’s ambitious green energy plans.[14] Adani and Modi appeared to be an unstoppable force.

Political ramifications

The Adani controversy represents a significant political headache for Modi’s BJP, given several important upcoming state polls in 2023 and general elections due in spring 2024. It has emboldened Modi’s critics, allowing the opposition to revisit persistent accusations that the prime minister is pro-big business and therefore “anti-poor” – politically dangerous in a country where an estimated 16.4 percent of the population live in poverty.[15] Indeed, jibes that Modi was pro-corporate early in his first term contributed to his government being forced to scrap reforms that would have eased torturous land acquisition processes for businesses.[16]

The scandal has provided fresh impetus for the main national opposition Indian National Congress party (Congress), which has been re-energised by a recent months-long cross-India walk undertaken by former party president – and still its main figurehead – Rahul Gandhi (great-grandson of India’s first prime minister Jawaharlal Nehru). The party has organised protests countrywide, alleging cronyism on the part of Modi and the BJP; it will be hoping to profit in upcoming polls in the coastal state of Karnataka due in May.

Nevertheless, Congress remains a shell of its former self, unfit even to claim the status of main opposition party in large swathes of the country. And the opposition more generally continues to be weak and divided on the federal level, unable to agree a coherent narrative to challenge Modi’s brand of chest-thumping nationalism.

More importantly, opposition parties have previously had little success in making allegations of corruption or cronyism stick against Modi, whose rare clean image in the notoriously murky world of Indian politics has been a key ingredient of his impressive personal popularity. For example, a controversy around the purchase of French Rafale fighter jets by Modi’s administration – allegedly for an inflated price and in a deal that favoured a conglomerate close to the government – failed to capture the public imagination despite repeated opposition campaigns.[17]

Against this backdrop, Modi’s most likely response will be to continue to tread a careful middle path, avoiding any overt public expression of support for Adani to mitigate allegations of cronyism, while resisting pressure to initiate a bipartisan parliamentary enquiry into the issue. The prime minister appears to believe he has the political capital to weather the storm, claiming in parliament on 15 February that he was shielded by the “blessings of 140 crore (1.4 billion) Indians”.[18]

Indeed, there are few signs that the Adani controversy has the potential to genuinely dent Modi’s personal popularity, with a poll published on 10 February showing that his high approval ratings remained unchanged.[19] As such, unless fresh bad news for Adani triggers an unexpectedly deep economic shock, it is unlikely to endanger Modi’s chances of securing a third term as prime minister in next years’ general elections, which appears all but certain. This points to broad political stability on the federal level for another five years.

Governance and regulatory concerns

Wider fears that the rout in Adani Group shares would endanger India’s capital markets, contaminating the Indian economy as a whole, have so far proven unfounded. Nevertheless, the controversy has raised difficult questions about the effectiveness of India’s regulatory oversight, as well as corporate governance and transparency. This will be of especial concern to the government given its attempts to woo foreign capital and promote India as an alternative manufacturing hub for multinationals looking to diversify their supply chains away from China due to escalating US-China tensions and the COVID-19 pandemic.

One of the key allegations in the Hindenburg report is that offshore shell companies linked to members of the Adani family comprise many of the “public” holders of the group entities’ stock, and that this would be cause for delisting of these stocks if SEBI rules had been properly enforced. The report also noted that Adani Group’s offshore funds were already the subject of an ongoing investigation.[20]

Indeed, as noted above, allegations of shady practices at Adani Group were not new, and had been swirling in the domestic media for years. The government in July 2021 informed parliament that SEBI was investigating Adani Group over non-compliance with securities rules.[21] This came after opposition politicians raised questions in parliament over the meteoric rise in the value of shares in Adani Group enterprises – with shares in Adani Enterprises surging by 3,300 percent in just three years.[22] Government critical news websites have claimed that SEBI “studiously looked away” and that the regulator operated mainly under direction from the finance ministry.[23]

More generally, accusations of cronyism in the case of Adani Group – whether true or not – highlight persistent concerns around systemic corruption in India, especially the nexus between the corporate and political interests. Large companies with political ties commonly dominate public tenders, resulting in the perception that legitimate competition is being stymied. However, corruption is also problem all the way down the chain. A survey by Transparency International published in 2020 found India had the highest bribery rate in Asia, while a 2018 survey by EY found that 44 percent of Indian companies surveyed admitted there was widespread bribery and corruption in business.[24] Companies may, for example, face demands for bribes from officials in charge of regulatory approvals and licensing – a sometimes painfully slow process, involving overlapping state and federal regimes.

Opportunity for reforms

India is on paper a highly attractive destination for foreign capital. As well as being a huge growth market – as the fastest growing economy in the world, with a population set to surpass that of China this year – it also enjoys abundant natural resources, a young and well-educated workforce, low wages, solid rule of law and broad political stability. Moreover, the Modi government has introduced a number of measures aimed at improving the business environment, including speeding up bankruptcy proceedings, cutting corporate tax rates, simplifying the process of setting-up new businesses, moving to streamline labyrinthine labour laws and introducing of ‘production-linked incentives’ for manufacturers in a range of sectors.

Despite this, the country has underperformed in terms of foreign investment compared to peers (Philippines and Vietnam, for example, have been more successful in attracting multinationals keen to reduce their exposure to China). This is partly due to concerns about excessive red tape, unpredictable policy changes and the snails-pace of the Indian legal system.[25] In this context, a failure to rapidly address additional concerns around corporate governance and oversight – and especially any perceived attempts to shield Adani Group – could prove detrimental to the government’s ambitious plans to make India a global manufacturing hub and leader in clean energy.

To attract foreign capital the government needs to reassure investors that India is a safe destination to do business. It will also be keen to quell the nerves of middle-class Indians (a key BJP vote bank) with savings in public lenders, which had significant exposure to Adani Group companies. Modi will also be aware of the increased international attention on India amid its presidency of the G20.

This means that the government is likely to consider some financial sector reforms in the coming months. These might include reducing the cap on controlling shareholders’ stakes in listed entities (which currently stands at 75 percent), forcing family-owned businesses to increase transparency and reducing the permitted level of exposure Indian banks can have to one business group.


The seismic shock to the system provided by the Adani scandal could yet prove an opportunity for India Inc, if it compels the government to introduce measures that improve transparency and corporate governance. Indeed, media reports on 13 February indicated that the central government had, in response to a Supreme Court request, agreed to form a committee to consider the need for modifications to SEBI’s regulatory regime.[26] Nevertheless, change can take time in India, so patience may be the order of the day.

The same will likely be true of SEBI’s investigation into Adani Group. Although Indian media reported that SEBI had been due to brief Finance Minister Nirmala Sitharaman on the status of its investigation on 15 February, the outcome will take time. The Economist reported that SEBI had given Adani Group six months to respond to its queries. 

As the dust begins to settle, the Indian government and regulators will come under pressure to demonstrate that they can objectively investigate the Adani controversy and enforce any violations. Investors can also be expected to seek transparent answers to questions about SEBI’s apparently slow response to warnings around Adani Group’s apparent lack of transparency amid stupendous growth. In this context, it will be critical for Modi to resist Adani’s appeals to economic nationalism and focus on improving market governance by ensuring strong and impartial controls.

Ultimately, investors should be reassured that potentially shady business practices at Adani Group – which had long been the subject of Indian media speculation – are not necessarily representative of all large Indian corporates, many of which have solid reputations for corporate governance. Nevertheless, for companies considering business partnerships in India, the episode underlines the need to ensure they fully cognisant of the risks and opportunities associated with this complex but potentially extremely rewarding market. Integrity due diligence is an effective tool to ensure that any heightened corporate governance or corruption risks are identified in advance, and that appropriate risk mitigation measures can be put in place prior to the start of any business venture. 

Verena Horne