How the US fraud charges affect India’s economy and politics

A few weeks ago, Gautam Adani, one of the richest men in the world, celebrated Donald Trump’s election victory and announced plans to invest $10bn (£7.9bn) in energy and infrastructure projects in the US.

Now, the 62-year-old Indian billionaire and close ally of Prime Minister Narendra Modi, whose $169 billion empire includes ports and renewable energy, is facing US fraud charges that could jeopardize his ambitions at home and abroad.

Federal prosecutors accused him of planning a A $250m bribery scheme and hiding it to raise money in the US. They accused Mr Adani and his management of bribing Indian officials to secure lucrative contracts worth $2bn over 20 years. Adani Group dismissed the allegations, saying they were baseless.

But this is already hurting the party and the Indian economy.

Adani Group firms lost $34bn in market value on Thursday, reducing the combined market capitalization of its 10 companies to $147bn. Adani Green Energy, which is the company at the center of these allegations, has also said it will not proceed with the $600m bond offering.

Then there are questions about the impact of spending on Indian business and politics.

India’s economy is closely linked to Mr. Adani, the country’s leading infrastructure. It operates 13 ports (30% market share), seven airports (23% of passengers), and the second largest cement business in India (20% of the market).

With six coal-fired power plants, Mr Adani is India’s largest private player in energy. At the same time, he has committed to investing $50bn in green hydrogen and is running an 8,000 kilometer (4,970 mile) natural gas pipeline. He also built India’s longest road and developed India’s largest slum. He employs more than 45,000 people, but his businesses touch millions across the country.

Mr Adani’s global ambitions include coal mines in Indonesia and Australia, airport and energy projects in Kenya and Morocco. The group is looking at over a billion dollars in infrastructure projects across Tanzania and Kenya.

Mr Adani’s portfolio closely matches Modi’s priorities, starting with infrastructure and more recently expanding into clean energy. He has thrived despite critics calling his business empire crony capitalism, pointing to his close relationship with Modi, both as chief minister of Gujarat – where they both hail from – and as prime minister of India. (Like any successful businessman, Mr Adani has built relationships with many opposition leaders, investing in their states.)

“This [the bribery allegations] it’s big. Mr. Adani and Modi have not separated for a long time. This will have an impact on the political economy of India,” said Paranjoy Guha Thakurta, an Indian journalist who has written extensively about the business group.

The crisis comes as Mr Adani has spent almost two years trying to rebuild his image after US short seller Hindenburg Research’s 2023. report he has accused his organization for decades of stock manipulation and fraud. Although Mr Adani denied the allegations, the allegations caused a sell-off in the market and in the price ongoing investigation by the market regulator of India, SEBI.

“Mr. Adani was trying to repair his reputation, and trying to show that those previous fraud allegations made by the Hindenburg group were not true, and that his company and businesses were actually doing very well. There have been a number of new deals and investments made in the last year or so, so this is just a side effect of a billionaire who has done a great job of deflecting the potential damage of those earlier allegations,” Michael Kugelman of the Wilson Center, an American think-tank, he told the BBC.

Meanwhile, raising money at home may be a challenge for Mr.

“The market reaction shows how bad this is,” Ambareesh Baliga, an independent market analyst, told the BBC. “Adanis will still receive funding for their major projects, but with a delay.”

The latest charges could also put a spanner in Mr. Trump’s expansion plans. He has been challenged in Kenya and Bangladesh for the program he planned taking the international airport and a controversial energy deal. “This [bribery charges] it is halting US-linked overseas expansion plans,” Nirmalya Kumar, Lee Kong Chian Professor at Singapore Management University, told the BBC.

What’s next? In politics, the leader of the opposition, Rahul Gandhi, surprisingly called for Mr Adani’s arrest and promised to disrupt parliament. “Bribing government officials in India is not news, but the amounts involved are staggering. I suspect the US has the names of some of the intended recipients. This has potential repercussions for India’s political climate. There is more to come,” believes Mr Kumar.

Mr. Adani’s team will undoubtedly put together a top-notch legal defense. “Right now, we only have the case, there’s a lot more to do,” said Mr. Kugelman.

While US-India business relations may face scrutiny, they are unlikely to be significantly affected, especially given the recent $500m US deal with Mr Adani for a port project in Sri Lanka, Mr Kugelman said. Despite serious concerns, US-India business relations are strong.

“The US-India business relationship is vast and multi-faceted. “Even with these serious allegations against a person who plays a major role in the Indian economy, I don’t think we should emphasize the impact this could have on that relationship,” said Mr. Kugelman.

Also, it is unclear whether Mr. Adani could be targeted, without a US-India extradition agreement, as it depends on whether the new administration allows the cases to proceed. Mr Baliga believes that it is not doom and gloom for the Adanis. “I still think that foreign investors and banks will support them as they did in Hindenburg, as they are part of the most important, well-performing sectors in the Indian economy,” he said.

“The sense in the market is that this is going to blow up and get fixed, as well [Donald] The Trump administration is taking over. “