How Crony Capitalism Hurts Citizens

Newsreel Asia Insight #13
Oct. 14, 2023

The Adani Group, India’s largest private coal importer, is grappling with damning reports accusing it of artificially inflating coal prices, consequently forcing both consumers and industries to bear higher electricity costs. It has drawn attention to a possible opaque symbiosis between business magnates and political elites in the country.

The London-based Financial Times recently conducted an exhaustive investigation into the Adani Group’s coal import records since July 2021. Customs data revealed that the company had paid $4.8 billion to three offshore intermediaries—based in Taiwan, Dubai and Singapore—at prices notably above market rates. The so-called “black premium” was, at times, more than double the going rate.

“In all cases prices in import records were far higher than those in the corresponding export declarations,” the report said.

In a rebuttal, the Adani Group made an extraordinary move by filing a regulatory statement, vehemently denying the allegations. The conglomerate accused the Times of being biased and collaborating with investor George Soros to tarnish its image. The group cited that similar allegations had been examined by Indian authorities and dismissed.

Earlier this year, the conglomerate had been the subject of a scathing report by U.S. short-seller Hindenburg Research, triggering a sharp decline in its market value. The timing was particularly unfortunate as the conglomerate was poised to make a follow-on public offering that could have fetched $2.4 billion. Now, instead of being celebrated as India’s “growth king,” Gautam Adani finds himself defending the business empire he has built over the years.

Critics point to Adani’s cosy relationship with Prime Minister Narendra Modi as emblematic of a more extensive issue involving a possible confluence of business and politics in India. The opposition Congress party has pressed Modi for an explanation, bringing additional scrutiny to a relationship that dates back to 2002 when Modi was the Chief Minister of Gujarat.

During Modi’s tenure as Gujarat’s Chief Minister, Adani invested in major projects in the state, setting the stage for his meteoric rise, noted an op-ed published in the Foreign Policy magazine in February. It said that since Modi ascended to national power, Adani has extended his reach into several sectors, from ports to airports to green energy. Citing reports, it added that Adani allegedly received favourable terms in many of these deals, fuelling suspicions of crony capitalism.

The alleged Adani-Modi nexus echoes the entanglements seen in Southeast Asia during the latter half of the 20th century, where political strongmen nurtured deep relationships with business tycoons who, in turn, benefited from state-sanctioned monopolies, the op-ed commented, pointing out that in such cases, the personal success of these businessmen was intrinsically tied to the political longevity of their patrons.

With Modi at the helm, India has seen a notable shift in its capitalist model, the op-ed said, adding that gone are the days of 1991 when economic reforms brought forth a new era of competitive Indian capitalism, with businesses navigating a labyrinthine bureaucracy while competing in various sectors. The emergence of the Adani Group, riding on its proximity to political power, presents a form of capitalism that combines the private sector’s interests with state objectives to an unprecedented degree, the op-ed remarked.

As regulatory bodies and watchdog organisations look into the allegations against Adani, the ramifications go beyond the potential financial misconduct of one corporate entity. The controversy casts a long shadow over India’s evolving business landscape and puts the international community on notice: how India handles the case could set the tone for the country’s corporate integrity and governance for years to come.

In a country where the line between business and politics is often blurred, the unfolding Adani saga becomes a crucial test of India’s dedication to ethical commerce and sound governance. As inquiries progress, it’s not just the future of a corporate giant at stake, but also the credibility of the nation's business ethics.

The impact also extends to everyday citizens who have an interest in the outcome.

Crony capitalism creates an uneven playing field, wherein select business leaders get special favours from politicians, making it hard for smaller businesses to compete and limiting choices for consumers. Citizens also end up paying more for basic services like electricity or healthcare because companies can inflate prices without fear of competition. It may also lead to poor use of public funds and corruption, taking away resources that could be used for public services like schools and hospitals. Overall, it erodes trust in both the market and the government, making life harder and less fair for ordinary citizens.