India's reputation will survive Hindenburg

Those who worry that the Adani saga will turn the world off India are not looking at the entire picture

In India, consensus is very difficult to achieve about anything. But there is a surprising degree of consensus in the public sphere about the possible fallout of the Hindenburg Research report on the finances of the Adani Group. Few believe, even today, when some Adani stocks hit multi-year lows, that the group will be forced to go out of business. Few believe that Prime Minister Narendra Modi, with whose rise to power the Adani Group has long been associated — fairly or unfairly — in the public mind, will suffer serious political repercussions from this. Mr Modi’s popularity is too deep-rooted for one such story to make a difference. And nobody thinks that India’s current economic strategy, which depends upon the identification of leading sectors and national champions, will change because one of those champions is under pressure.

Instead, both critics and supporters think that the real impact of the Adani saga will be on the reputation of India itself — as a policy jurisdiction, as an investment destination, and as a place to do business. The more conspiratorial-minded of our fellow countrymen, who are hopefully over-represented on social media, believe that such stories are co-ordinated and designed to make India look bad. Others, perhaps more rational, are concerned that the impact of such stories will be to turn the world off India at a point when it seemed that investor interest was spiking.

Both views are in fact wrong. One very much so, and one less so.

The conspiracists must recognise that there is no great lobby in the Western world that seeks to undermine India. Quite the opposite, in fact. The West has bet heavily on India’s long-term prosperity. Rather than being wedded to the notion that India will fail and thus creating stories intended to bring it down, if Western opinion possesses any institutional biases about India they are the following: First, the notion that India will grow sufficiently to counter-balance China; second, that there will be investment opportunities (such as those provided by national champions including Adani) that make Western investors money; and third, that India is substantively different from China in that it has more open and transparent systems. There is simply no lobby with any influence in the Western world that seems to bring India down. Such conspiracists can never explain concisely and rationally what the incentives for such a lobby would be.

What about the other side of this consensus? Those who worry that such stories will turn the world off India are not looking at the entire picture.

The sole accusation that has been levelled at Indian institutions, regulators, or politicians in this saga is the suggestion that the securities market regulator has not moved swiftly enough on investigation of concerns about some investments in the Adani Group. This is an accusation that can be easily answered — and, if found to be fair, as easily corrected. The impact of any such course change on the broader Indian economy need not be strongly negative. The impact on trust in Indian institutions will be strongly positive.

It is also worth noting that statements from government officials on this matter have been restrained, and clearly seek to dissociate the government from the issues at stake. The Union finance minister has said that “one instance, no matter how much it is talked about globally, is not going to be indicative of how well the Indian markets are governed”. This does not prejudge the truth of the allegations one way or the other, but merely points out that Indian market governance has a reputation independent of and beyond this case. It is hard to see how this statement could have been bettered. The Union commerce minister said in Parliament that the government has “no role” in “purported wealth” that is a “share market calculation”. No attempt to backstop the group rhetorically or actively is visible at this point. Meanwhile, various regulators, including the Director General of Corporate Affairs, have reportedly responded to the story by having a look at the allegations in it.

If such an attitude continues to characterise the official response, then it is hard to see why the current level of trust in Indian institutions will be irreparably damaged.

As India rises, and as its economy becomes more consequential and its companies and institutions acquire global reach, they will face more scrutiny. This should not be seen as a danger, but as a normal byproduct of size and influence. Not all these stories will be positive. But even the negative ones need not harm the broader national interest, as long as our response to them is rational and transparent. Let that be the immediate lesson we take home from the Adani saga.