By Craig Mellow

If India is the country of the future, that future looks sticky-fingered.

On Nov. 20, U.S. federal prosecutors indicted India's second richest man, Gautam Adani, and seven associates for allegedly paying more than $250 million in bribes to Indian officials to obtain renewable energy contracts, then using those contracts to raise billions of dollars in debt and equity on U.S. territory.

Indian stocks -- which have more than doubled from pandemic lows despite a correction over the past two months -- didn't suffer immediately, aside from Adani's own companies. But the case won't help Prime Minister Narendra Modi's ambition to leap forward as a global manufacturing power, in part by attracting copious foreign direct investment.

"Given the closeness of Adani with Modi, the ramifications of this indictment are both financial and political," says Steven Schoenfeld, CEO of MarketVector Indexes.

The Feds periodically extend the long arm of U.S. law abroad using the Foreign Corrupt Practices Act. The charges against Adani shatter records for size and scope, though. "What really shocks here is the scale of the alleged bribery," says Michael Kugelman, director of the South Asian Institute at the Wilson Center.

No less resonant are the links between Modi the politician and Adani the tycoon since Modi's days as chief minister of Gujarat state 20 years ago. Starting as a local port and utility operator in Gujarat, Adani has built a global mining, transportation and energy empire since Modi rose to prime minister in 2014. "Adani's meteoric rise since Modi came to power is very clear," says Kush Amin, legal specialist at Transparency International.

The alliance was unshaken by a January 2023 report from U.S.-based short seller Hindenburg Research claiming Adani was "pulling the largest con in corporate history." Adani Group has received lucrative infrastructure contracts following Modi state visits to half a dozen countries in Asia and Africa, Amin reports. Kenyan President William Ruto canceled a $1.9 billion deal with Adani to refurbish Kenya's main airport the day after the U.S. indictment.

Modi hasn't commented since the Feds dropped their bombshell. His opponents have. "Adani gives funds to Modi, and in return Modi turns over the national assets to him," Congress Party leader Rahul Gandhi declared.

Modi looks more vulnerable to such broadsides since his Bharatiya Janata Party lost its parliamentary majority and was forced into a coalition government after elections this spring, Kugelman says. "Modi projects incorruptibility as a big part of his political mystique," he says. "But he can't afford to just push Adani away."

The Adani affair could also roil the smooth sailing Modi was looking forward to with a returning Donald Trump, whom he views as a simpatico pro-business strongman. Trump could simply quash the indictment once he takes control of the Justice Department after Jan. 20. He is more likely to use it to pressure India, which leans on tariffs to protect budding industries, for trade concessions, Kugelman thinks.

Adani's troubles fall short of an existential threat to him or the Indian growth story. Washington and New Delhi will likely hammer out a plea-plus-fine agreement that skirts the confrontation of an extradition request for the oligarch and a mug shot at a Brooklyn courthouse, Transparency International's Amin predicts.

With more than 5,000 Indian stocks on offer, global investors gravitate to companies that are far from the muck of big infrastructure contracts -- banks riding a consumer boom like HDFC Bank and ICICI Bank, or IT offshoring giants like Infosys and Tata Consultancy Services.

But the seamy details spelled out in the federal indictment won't encourage foreign direct investment, which India aims to increase by 50% to $110 billion a year in its quest to be something like the next China. It could damage the decade of Modi-BJP political hegemony that has transformed the most populous nation much more to markets' liking.

Corruption has been a lagging indicator as Modi marches India's economy forward. The country ranked 93(rd) in Transparency International's latest corruption perceptions index, sandwiched between Tunisia and Kazakhstan.

The latest events make that harder to ignore. Investors be aware, if not beware.

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November 25, 2024 10:27 ET (15:27 GMT)

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