Is the Indian miracle the success story of our time, destined to overshadow China’s global role? Or a speculative bubble, a house of cards that is starting to collapse under the tremendous shock of Adani scandal?
L’India been featured this year at the World Economic Forum in Davos, just like fifteen years ago when he invaded that summit with the successful slogan “Incredible India!” (with an exclamation point) invented by an advertising campaign to attract tourists and investors.
India at the center of attention of Western multinationals as a possible replacement for China in this era of “friend-shoring”, relocations in geopolitically safe, reliable, allied or friendly areas: a recent case Apple which today is assembling 85 % of its iPhones in China but aims to move 40% of production between India and Vietnam.
This was also the period marked by some very symbolic overtakings. In 2022, India’s GDP surpassed that of the United Kingdom, the former colonial power that dominated the country until 1947.
This year, according to the UN, India set to overtake China in terms of populationand a significant event because it underlines the demographic superiority of the Indian elephant over the Chinese dragon: in the long term, India’s young workforce could give it an edge, while Beijing will have to face costly public investments to adapt its welfare to a population that gets old.
Among the many overtakings we can add some of a “private” nature, which concern the sixty-year-old tycoon Gautam Adani. In 2022 he (briefly) surpassed Amazon’s Jeff Bezos and placed behind Elon Musk as the second richest man in the world. Furthermore, one of his companies, specialized in solar energy, has joined Enel and aims to surpass the Italian multinational in terms of turnover in this sector.
The Adani conglomerate has become something of an indicator of the health of the entire Indian economy. The rise in the stock market of its seven listed companies had dragged a stellar performance of the entire MSCI India stock index, for a year and a half the most brilliant in all of Asia. On the other hand, the companies of the Adani conglomerate alone are worth a fifth of the entire Indian Stock Exchange.
The Green sector (in which the entrepreneur has promised 70 billion dollars of new investments by 2030) is a flagship, with which Adani identifies his own strategy and that of the Indian government: a mix of environmentalism and pragmatism in which they coexist investments in coal and renewables.
For some time, very serious doubts have surrounded the nature of the Adani phenomenon.
The founder Gautam, the son of a textile merchant, presents himself as a “self-made man” who personifies the new India of Prime Minister Narendra Modi. The BJP, the Hindu nationalist party that has a majority in Congress, sees itself as pro-business unlike its predecessor, the Congress party whose socialist ideology sunk in a sea of corruption scandals and the familism of the Gandhi dynasty. Modi and Adani are from the same state, Gujarat.
The rise of the two is sometimes considered as a “parallel” phenomenon, because Adani is suspected of having received many favors by the powerful premier. For example, in 2019 the Adani group was awarded six airports privatized by the government, despite having no experience in the sector. Until then Adani only operated in port logistics as well as in other sectors of heavy industry (cement), plastics and energy.
According to the most critical analyses, Narendra Modi’s consolidation of power has facilitated the fortunes of two capitalist giants, the dynasties Adani and Ambaniwhile it has so far failed to keep its promises of an authentic liberalization of the Indian economy to the benefit of all businesses.
Ten years ago, a prescient analysis of two economists from the Chicago Business School, the Indian Raghuram Rajan and the Italian Luigi Zingales, came out on this economic model. They described India as a case of “Chronic capitalism” that is crony, nepotist and corrupt capitalism. (Rajan later became governor of the New Delhi central bank, but he only served two years in that post).
Someone wanted to give that term a positive connotation, noting that another Asian miracle, that of South Korea, was originally based on the opaque and colluded system of the Chaebol, the local conglomerates. A decade later, Rajan-Zingales’s thesis suddenly returned to the news with the Adani scandal.
A small American investment and financial analysis firm, Hindenburg Research, has accused the Indian conglomerate of having “organised the largest scam in the history of capitalism.” Hindenburg specializes in “short-selling”, i.e. downward speculation, and targets companies that it believes are overvalued by the market and afflicted by hidden weaknesses. Twitter has also been among its targets in the past.
In Adani’s case, Hindenburg’s accusation speaks of “manipulation of quotations and fraud in the financial statements that lasted for decades.” The stock market crash was brutal and has currently destroyed 60% of the value of the Adani group. The moment is delicate because a new placement of shares for 2.5 billion dollars is taking place. The scandal affects not only a capitalist of enormous power, and with political connections at the highest level, but casts heavy doubts on the credibility of all the institutions that are supposed to supervise the Indian financial markets.
The key point this. Financial scandals happen everywhere, not just opaque systems like socialist China and chaebol capitalism Korea; the Lehman crash in 2007, or the recent cryptocurrency scandal, remind us how much the American economy has known its bubbles and its crashes. The problem in the Adani case is that no one has pierced the bubble in India, it took the intervention of a foreign entity, from the United States. If Hindenburg’s accusations prove to be founded, the credibility of the system is at stake.
We need to see how much India itself will want to shed light and cleanliness. Adani conveniently bought one of the major television networks in the country, the Ndtv, which also gives him an important influence in information. Five years after the launch of the “Incredible India!” (2002), I wrote “Indian Hope” (2007), an essay in which I analyzed the nation’s strengths and weaknesses.
The dream of overtaking China was already on the agenda then: not only overtaking in demographics, but in the speed of growth. Since then there have always been some accidents to derail the most ambitious plans and the elephant’s GDP remains much smaller compared to that of the dragon.
Among other explanations, the Indian bureaucracy proved stronger than any plans to reform it; also for this reason the Indian economy has never reached the Chinese one in terms of modernity of energy and transport infrastructures. The Adani scandal, the test of 2023, also tests the infrastructures of regulation, supervision, protection of savings.