A new test of credibility for Indian businesses

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Nearly two years after a US short seller accused Gautam Adani’s businesses of being involved in accounting fraud and stock market manipulation, India’s second-richest man faces charges federal crime in the US. Prosecutors allege that Adani – whose business growth followed the political rise of Prime Minister Narendra Modi – and several associates were part of a scheme to bribe Indian officials. The allegations pose an even more serious test of credibility to India’s business establishment, regulators and law enforcement. How they respond will be crucial for the country’s business reputation. India’s investment case is based not only on its impressive size and growth rate but also on its claim to be a safer alternative to an autocratic China.

Prosecutors in the Eastern District of New York accusation Adani and seven other executives were part of an effort to pay or promise more than $250 million in bribes to Indian state government officials to obtain green energy supply contract worth billions of dollars. They allege the scheme was hidden from US banks and investors, for whom the business raised millions of dollars in capital. Adani Group said the accusations were “baseless and denied” and added that they would seek “all possible legal remedies”.

News of the charges was sent stock price of Adani companies collapsed just as the group was emerging from a long effort at denial accusation conducted in early 2023 by Hindenburg Research, a New York short-selling firm, to bolster the confidence of lenders and investors. Hindenburg’s report was one in itself quiz for India Inc – but it was dodged. The business establishment and government have largely closed ranks around the Adani Group, repeating their narrative that the short-seller report is a “calculated attack on India.”

Although the stock market regulator, Sebi, has launched investigations, it has taken little action in response to the Hindenburg report and the Financial Times report and others alleging that Adani manipulated its own shares – something the group has strongly denied. India did not take the time to debate whether its corporate governance standards and market controls were strong enough for a top-five global economy that prides itself on being the world’s largest democracy. .

The country’s political and business elite should take seriously the allegations now emanating from US legal authorities and ensure they are properly investigated domestically. While the interference of foreign agencies may be unpleasant, that is the price to pay for exploiting international investors. There are also important questions about why American law enforcement agencies and not Indian authorities pursued this case.

After all, these allegations go straight to the heart of India’s economic power concentrated in politically connected, family-run conglomerates – and investor concerns about capitalism. “friend” self. Not only does Adani himself have a long-standing relationship with the prime minister, who also hails from Gujarat. His team, which spans ports and airports to mining and green energy, is at the heart of Modi’s plan to build India’s infrastructure as the backbone of its further development. this country. Doing so will have to rely on foreign investment and investor confidence.

Advanced economies also have problems with crony capitalism. Perhaps more than any recent predecessor, returning US President Donald Trump has surrounded himself with billionaire businessmen vying for support. But such models often lead to suboptimal growth. The Modi Government’s bold ambitions will be best realized by ensuring the emerging economic powerhouse has a strong and transparent regulatory and legal environment.