Will India remain untouched by the slide of Adani?

Whether the Opposition is successful or not in getting a JPC to inquire into the allegations against the Adani Group, it will not fail to use the issue in public as well as in Parliament

The Indian government will not remain untouched by the slide of Gautam Adani. This is evident from the video appearance of Adani's Chief Finance Officer, an Australian citizen, trying to rebut Hindenburg Research with a giant Indian flag flanking him conspicuously. The 413-page response of the Adani Group further claimed, "This is not merely an unwarranted attack on any specific company but a calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India."

Equating Adani with India will not prevent the failure of Indian regulatory institutions and the fragility of Indian entrepreneurship based on cronyism.

As Adani's projects in Australia, Sri Lanka, Israel, Bangladesh and elsewhere come under strain, the bilateral ties with these countries could be impacted. All governments facilitate the expansion of economic and business links through their commercial and economic diplomacy. The Adani Group would also have been a beneficiary of diplomatic facilitation – some might claim, more so than others.

One only has to recall that the chairman of Sri Lanka's Ceylon Electricity Board, MMC Ferdinando, appearing before the parliamentary committee on public enterprises, claimed that Narendra Modi put pressure on the then President Gotabaya Rajapaksa to award the 500 MW renewable energy project at Mannar in northern Sri Lanka to the Adani Group. Ferdinando later withdrew the statement under political pressure after President Rajapaksa "vehemently" denied his claim. The Adani Group has also been awarded the contract for Colombo's Western Container Terminal.

Many will find it difficult to accept that the Adani Group's international forays have been without government facilitation – as in the case of Sri Lanka. These include its entry into Myanmar, aborted for fear of violating US sanctions, as well as its acquisition of the Haifa Port in Israel.

The international fallout of the Hindenburg report has begun. Jo Johnson, the brother of former British PM Boris Johnson, resigned as director of a company linked with alleged Adani share manipulations. The Australian Securities and Investment Commission has ordered an inquiry into the group illegally using offshore tax havens. Adani runs the Carmichael coal mine and the North Queensland Export Terminal port in Abbot Point, Australia. Bangladesh has suddenly decided to renegotiate a 2017 power purchase agreement with Adani, claiming that it was buying coal for the Godda Power Plant (which has a dedicated transmission line to Bangladesh) at almost double the cost Dhaka was paying for imported coal.

Credit Suisse has stopped accepting bonds of some Adani group companies as collateral for margin loans, pegging their value at zero for private banking clients. Other banks, however, continue to lend against bonds of Adani entities.

So stunned was the government by the Hindenburg revelations that it took four days to take stock of the situation and react. Its strategy has been twofold: to claim that the Adani Group's activities are like that of any other firm and the government had nothing to do with it; and that LIC and the PSU banks are stable. While SEBI, RBI and the Ministry of Corporate Affairs have apparently started their own inquiries, the Enforcement Directorate, the Central Bureau Investigation and the Serious Fraud Investigation Office are silent. The overwhelming signal that the Adani imbroglio sends to international investors is that India lacks effective regulatory mechanisms.

If foreign investors do not buy into the narrative of "sab changa si" (everything is hunky-dory) and start withdrawing from the Indian market, this could have adverse knock-on effects on the rupee, oil prices and inflation. The losses suffered by the state-owned LIC will impact the lower middle class, which still uses it as an investment and insurance vehicle. What is curious and will need a public answer is why the LIC insisted on investing $37 million in Adani shares in the follow-up public offer even after the Hindenburg expose. If the Adani share value keeps declining in the days to come, LIC's losses will mount, and its middle-class investors will suffer, as would those invested in SBI Employees Pension Fund, SBI Life Insurance Co, and HDFC Life Insurance Co – the other anchor investors of the group.

The three largest lenders to Adani among the Indian banks – the State Bank of India (Rs 27,000 crore), the Punjab National Bank (Rs 7,000 crore) and the Bank of Baroda (Rs 5,380 crore) – would find it difficult to lend to the Adani Group in the future.

If the group faces a liquidity crunch, it will likely come under pressure in Opposition-ruled states as its projects there slow down. The Adani Group projects in Opposition-ruled states include the Rs 7,600 crore Dhamra Port, a Rs 41,653 crore alumina refinery and 175 MW power plant in Kashipur and an LNG terminal in Odisha; the Rs 14,450 crore 16,000 MW Godda Thermal Power Plant; the Rs 7,500 crore Vizhinjam Port in Kerala; the Solan and Bilaspur Cement plants in Himachal Pradesh; a logistics park in Ludhiana, Adani Wilmar warehouse project at Rajpura, Adani Logistics warehouse (started in 2007) and Adani Agri-Logistics warehouse in Faridkot in Punjab. The promise of investing Rs 25,000 crore in Tajpur Port in West Bengal and another Rs 65,000 crore in Rajasthan may now remain a pipedream.

Whether the Opposition is successful or not in getting a Joint Parliamentary Committee to inquire into the allegations against the Adani Group, it will not fail to use the issue in public as well as in Parliament. The onus is now on the Opposition to put the government on the mat and demonstrate that the Adani Group benefited from its links with prominent BJP leaders.

Any attempt to remonetise Adani or protect him could be used by the Opposition to hammer the government further. This could have consequences for Brand Modi domestically, as in the eyes of many Indians, the party's current leadership and Gautam Adani are joined at the hip. Henceforth, at every international fora as well, the spectre of Adani will haunt Brand Modi.