February 26, 2023

Cronyism and the Optical Illusion of ‘National Interest’

Sanjay Roy

THE impact of the short seller Hindenburg report on Adani’s share values and the consequent political response of the government reveals some of the worrying trends that the Indian economy seems to be witnessing at the moment. It is not so surprising that the Indian State came forward in defense of big capital which in any case it had been doing for the past couple of decades and also ‘cronyism’ is not a new trait in India’s history of State-business relationship. In some way or the other subverting national interest while benefiting few business groups was a major concern that drove Indian regulation systems in putting certain controls over monopolies and their pernicious ways of maneuvering existing regulations.

Indeed, there have always been tendencies on the part of the big capital of eschewing others and grab the biggest out of manipulating existing regulations using arms-length relation with the political bosses. In the pre-liberalisation period excess dependence on particular business houses on certain sectors came under scrutiny and these forced governments in the past to act upon so as to restore legitimacy. Although the fact remains that eventually these measures were easily bypassed by big monopolies and the concentration of economic power continued to increase.

Unlike East Asian ‘developmental states’, arms-length relation between big corporates and the State in India has largely been a story of failure in disciplining the ‘industrial class’. In India, economic benefits or deliberate absence of oversight was exchanged against monetary support to political parties and the State seemed to be reluctant in forcing industries in attaining long term competitive capabilities in exchange of the benefits and subsidies they received out of public exchequer. Nevertheless, such cronyism triggered heated public debates in India at various points of time, it came under scrutiny as these exchanges could not be made invisible by instruments such as electoral bonds, the way it happens today.

On the contrary, the people of India have been amazed to see how a leader at the highest public office of the State came in support of Adanis indirectly by diverting the debate into an altogether different direction. The questions raised from different quarters about the prime minister offering blatant support to a particular business group eschewing others through arm-twisting was dealt in a manner that questioning malpractices and overvaluing of shares by Adanis is equivalent to questioning India’s achievements and as a move to jeopardise India’s credibility to global investors. Implicitly this has become a norm these days that the substance of the questions raised in the parliament can be ignored, bypassed and bulldozed by the sheer weight of majority. This seems to be a moment of grave danger to democracy as the implicit message follows that as long as parties enjoy popular support, elected representatives can shrug off public accountability.

The more important fact is during the liberalised regime finance seeks to impose a governance on the overall economy through the financial architecture such that the interest of finance and that of the corporates appear to be synonymous to the interest of the people of India. Given the fact that the big corporates increased their stakes to a great extent in the economy and public sectors are increasingly exposed to capital markets through disinvestment, the abnormal bleeding in the share market and shaving off of share values send panic shocks seen to be detrimental for the health of the economy. It is the result of increased financialisation of the economy where corporate interests appear to be synonymous to national interests. More the economic gains and losses of financial markets are diffused across the economy, the more the optical illusion of perceiving interest of corporates as that of the ‘people’ becomes stronger. The sheer weight of Adanis in India’s investment scenario and its expanding empire under the direct patronage of the prime minister seems to be making it too big that India could hardly afford to fail!


The Adani group according to CMIE CapEx database is currently implementing or has announced intentions of implementing 191 large projects involving investment of over Rs 7 lakh crores and completed 123 large projects of worth one lakh crore rupees.

Most of the new investments are infrastructure projects including 13 ports, 33 renewable energy projects, 12 conventional energy projects besides electricity transmission projects and cements. Large investment projects are spread over couple of years and that in the aggregate defines the value of the investment pipeline. The current value of investment pipeline of Adanis is something around Rs 7.168 lakh crores. But what Adanis have announced as their potential projects together with those currently in the process of implementation adds up to a project value which is equivalent to average aggregate value of projects completed in a year in India. The huge investments of over a hundred Adani group companies taken together therefore constitute a significant part of India’s infrastructural investment.

In terms of financial health, the current ratio which is the ratio between total assets to total liabilities of Adani group comes out to be 0.74 in 2021-22 which is lower than asset-liability ratio of most of the large business groups in India. Adani group companies also record the highest debt-to-equity ratio in the range of 1.5 to 1.1 which is much higher than the gearing ratio of other big corporates. These are reflections of the fact that Adani group is over-leveraged compared to others, meaning their dependence on debt is relatively higher. What is interesting about the group is that even if their debt-to- equity ratio is higher compared to others and they are mostly investing in large infrastructure projects but the growth of fixed assets of Adani group companies had been much lower than the average growth of all non-financial companies within the corporate sector taken together.

The average growth of fixed assets for the non-financial companies in the past three years from 2019-20 to 2021-22 was 5.3 per cent while that for the Adani group was -1.7 per cent. These are undoubtedly issues of concern which investors both within India and from abroad will be taking into account while investing in Adani shares. Substantial debt and inflating stock prices for further debt was the crux of Hindenburg report that led to a decline in group shares after the report went public. As a consequence, Adani enterprises were forced to withdrawing the follow-on offer worth Rs 20,000 crores and eventually to cutting down their revenue growth targets and capital expenditure.



Exposure to Adani group stocks for SBI was in the tune of Rs 27,000 crores but PNB and Bank of Baroda also have exposure to Adani’s stocks. LIC’s exposure is around Rs 36.5 thousand crores. LIC invested Rs 300 crores in buying stocks of Adani enterprises. The top bosses including the finance minister have assured that these exposures are very much within tolerable limits and even if Adani stocks fall further LIC has enough cash flow to take care of insurers’ claims. LIC has also stake in Adani Gas and Adani Ports. Despite being claimed that these exposures are minimal but a persistent fall in Adani stock values would also impact adversely on stock values of these public sector companies.

The fact of integrating public assets to the volatility of speculative investments creates possibilities of fluctuations that are completely uncalled for. Also the decline in Adani shares and the trust deficit that follows would be reducing their capacity to raising funds from capital market. This would necessarily affect the investment cycle and realisation of infrastructure projects that are being committed by the group and those in the pipeline. Here comes the optical illusion of coincidence of Adani’s interest and that of the nation. But what led to this situation? Nothing but concentration of economic power by direct patronage from the PMO that makes new investments excessively dependent on a particular business group.

In fact, fluctuations of Adani stock prices could have hardly mattered to the common people if such fluctuations of securitised assets do not become significant to real investments. Actually it is the small retail investors in the stock market who suffer the most because big players only have privileged access to critical information about the company. Also because of the financial architecture and diffusion of finance, the rise and fall of stock prices increasingly seem to be validating or violating some norm attached to the good health of the economy. This is the governance of finance where reification of capital’s requirements of social reproduction seem to impose a rhythm on the process of real accumulation. Remedies rather correctives even today are sought either through strategic purchase or by interventions within the framework of financial prudence.

Reassuring governance and regaining trust assumes utmost importance to regulators with an eye to domestic and global investors, so that the rhythm is restored; whereas concentration of economic power and ‘cronyism’ are structural problems of the real world capitalism that demands a complete overhaul of the economy and commitment to restrain speculative capital altogether.