Adani’s fall reignites scrutiny on tycoon’s close ties Modi

The Hindenburg report has further sharpened the focus on the billionaire mogul’s close relationship with Modi.

“Adani has pulled off this gargantuan feat with the help of enablers in the government and the cottage industry of international companies that facilitate this activity. This problem of corruption permeates several layers of the government,” the report alleged.

In a rebuttal running over 400 pages, the Adani Group denied the allegations calling it 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.

India has always struggled with “crony capitalism,” but the cozy relationship between Modi and Adani has been “taken to a different level,” according to Ashok Swain, head of the peace and conflict research department at Uppsala University in Sweden.

“Modi and Adani probably show the closest relationship a politician can have with a business person; of course, it has never happened in India. The rise has been together,” added Swain, a veteran observer of Indian politics.

The Adani family conglomerate includes airports and maritime cities for coal and renewable energy and more recently, the media.

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

Vaishnav added that the Modi government’s industrial policy is based on building national champions in industry, and that Adani has been the “poster child so far.”

“There’s no question that Adani likes this position at least partly because of his proximity to the prime minister,” he said, “but also because of the perception that he can do projects at scale.”

Adani and Modi’s relationship has been going on for a long time.

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

Modi flew in an Adani jet afterwards he was elected to national office in 2014.

“That Adani and Modi have forged close ties over the years in Gujarat is an open secret,” Vaishnav said.

“There is no question that the fortunes of these two people are linked,” he said, “especially in the last few years as the government has increased capital spending as it has made a push for infrastructure.”

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

The two embody the “Gujarat model of growth,” he said, pointing to the close ties between big business and the government.

“In particular, infrastructure is a key element of Modi’s nation-building plan. Adani [Group] is one of the few companies in the country that can deliver major infrastructure projects across the country,” Remtulla told CNCB’s “Squawk Box Asia.”

“Similarly, for Adani, they need implicit support from Modi to raise funds for these capital-intensive projects. So this is a long and productive relationship that spans decades,” he said.

The Hindenburg report was a political gift for India’s opposition, which has for years hounded Modi over his ties to Adani. With national elections due next year, opposition critics seized on the report to attack Modi and his party.

India’s main opposition Congress party has staged protests and demanded an inquiry into Hindenburg’s allegations. Opposition critics have also accused the Mod government of giving unfair favors to Adani’s business empire.

“All countries have observed the close relationship between the commercial interests of the Adani Group and you [Modi’s] eager to help them adopt government policies. This pattern is consistent across sectors ranging from agriculture to energy to transport,” Jairam Ramesh, general secretary of the Congress party, said in a statement last week.

In 2018, the Modi government reportedly changed the rules that allowed Adani to bid for — and eventually win — tenders for six airports. This was met with outrage amid criticism of cronyism. The government has denied the allegations.

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

“Besides granting licenses for airports and ports, changing environmental rules for Adani’s coal mines, and tweaking the rules for selecting Adani’s shares in special economic zones, Modi has helped Adani’s business in many ways,” he said.

In a speech to parliament last week, the prime minister appeared unfazed by opposition criticism and did not mention Adani.

“The blessing of 1.4 billion citizens is the biggest ‘suraksha kavach’,” Modi said, using a Hindi term that means “shield of security.”

“And you will not be able to breach this safety shield with weapons of abuse and deception,” he said, as opposition lawmakers chanted “Adani, Adani.”

Adani has denied claims that he got personal favors from Modi, calling the allegations baseless.

“Prime Minister Modi and I are from the same country. That makes me an easy target for these baseless allegations,” the tycoon said, according to a January report in India Today.

“My professional success is not due to individual leaders, but to the policies and institutional reforms implemented by several leaders and governments over more than three decades,” he said in the report.

Politically, it is difficult to predict what effect, if any, the new scrutiny will have on the popularity of Modi and the ruling Bharatiya Janata Party, observers say.

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

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 from this crisis unscathed, Swain added.

“Adani’s close relationship with Modi has forced supporters and Indian Hindu nationalists to defend it [Adani] for nine years. It will not be easy to stay away from Adani now,” he said.

“Instead, they will try to blame Adani’s downfall on an international conspiracy against Modi,” he said.