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EDITORIAL ANALYSIS : The Adani story and Indian neoliberalism



Source: The Hindu

  • Prelims: Protectionism, liberalization, Neoliberalism, capitalism, GDP etc
  • Mains GS Paper III: Government planning, mobilization of resources, LPG reforms, protectionism etc


  • A strike on the Adani group by the S.-based Hindenburg Research has led to the unraveling of the Gautam Adani business
    • It celebrated the spectacular rise, in an extremely short period of time, of the wealth of a man and his business empire.




Crony capitalism:

  • It is a term used to describe a capitalist economic system in which individuals or businesses with close ties to political leaders and government officials use their political connections to gain an unfair advantage in the marketplace.
  • Crony Capitalism Index 2021 published by The Economist;
    • India was ranked at 7th position where crony sector wealth accounted for 8% of Gross Domestic Product (GDP) of the country.


Issues Associated with Crony Capitalism:

  • Unfair Advantage in Marketplace
  • Distorted Market Competition
  • Reduced Innovation
  • Public Distrust of Government and the Economy



  • Neoliberalism is based on principles such as non-discrimination in international economic relations and a peaceful settlement of disputes through neutral international courts.
  • In the neoliberal order, economic and security interests are relatively independent tracks.
  • It champions interdependence.
  • Global institutions: Neoliberal order created global institutions such as the WTO and a plethora of free trade and investment treaties.


Hindenberg group and its report:

  • It is a company that specializes in forensic financial research.
  • It looks for:
    • accounting irregularities
    • undisclosed related-party transactions
    • illegal/ unethical business or financial reporting practices
    • undisclosed regulatory, product, or financial issues in companies.
  • It published a report critical of the group’s finances.
  • The research firm, which has short positions in Adani companies through US-traded bonds and non-Indian-traded derivative instruments, said:
    • Key listed companies in the group had “substantial debt” which has put the entire group on a “precarious financial footing”.

What was the Impact?

  • Much of that wealth disappeared following a crash in the stock values that shaved more than $100 billion off the market capitalisation of seven publicly listed Adani group companies.
  • Withdrawal, post-launch, of a $2.5 billion share issue and, possibly, of rounds of borrowing.


Features of the Adani story:

  • Gravity-defying climb in market value of the listed companies
  • Expansion of the physical assets of the group that, in the same short span of time
  • Displaced well-entrenched business groups that dominated India’s corporate sector.
  • Investments largely in capital-intensive infrastructural areas — power generation, ports, airports and roads, besides mining and metals.


  • Capital intensive infrastructural sectors were largely the preserve of the public sector.
    • Reason for reservation:
    • These sectors required large investments, involved long gestation lags, and were, therefore, more risky.
    • The pricing policy of the government and of the public enterprises were such that when profits were made, projects were less profitable than elsewhere.
  • Infrastructure needs large outlays, and the rewards are limited even when positive.
  • Entrants into the infrastructural sectors need to risk large volumes of capital, only a small proportion of which can flow from the own coffers of a fledgling entrepreneur.
  • Adani group invested in more than one such project in any single infrastructural area.
    • It made investments in greenfield projects or acquisitions to build large asset shares in multiple areas.


The favorable factors:

  • Adani group was favored by features of India’s neoliberal policy regime after the turn of the century and spike in GDP growth to around 8% per annum during 2003-04 to 2011-12.
  • The surge in domestic liquidity swelled deposits in India’s banking system and set off a credit boom.
  • Banks looking to expand their loan base had to resort to aggressive lending practices that took them into new areas, including infrastructure which was earlier considered too risky.
  • The government focused on building infrastructure needed to support a private sector-led growth strategy.
  • Government was committed to both incentivising the private sector with tax concessions as well as veering in the direction of fiscal conservatism.
    • Subsidies and ‘viability gap funding’ from state coffers and flexible pricing were examples of such support.


What does the Hindenburg report suggest?

  • Adani benefited disproportionately from these features of the neoliberal policy regime.
  • It borrowed heavily from public sector banks as well as obtained equity financing from public financial institutions such as the LIC
  • Official permissions, easy environmental clearances, access to land and convenient policies, combined to drive the Adani expansion.
  • The group used related-party shell companies claiming to be independent to park finance in tax havens abroad.
    • It was then used to acquire the shares of Adani firms.
    • That helped raise share values to unwarranted levels
  • Despite red flags from multiple sources, no scrutiny by Indian regulators whether of the Adani firms, the foreign investors or the banks investing in and lending to the companies.
  • State support was combined with regulatory forbearance.


Way Forward

  • The rumors of state patronage possibly encouraged foreign bond and equity investors searching for higher yields to buy into Adani, whenever the opportunity arose.
  • Adani seems to have preferred debt, with free floating shares of its listed companies available for trading being a small proportion of the total.
  • The Adani group sought to dismiss the allegations of the short seller
    • It does not seem to have convinced private creditors and investors.
    • Share prices collapsed leading to margin calls from those holding shares of inflated value as collateral.
  • Neoliberalism is not about market competition and transparency, but an instrument to engineer income and wealth redistribution.
    • In this case in favor of one individual and his group.



The broader aims and objectives of WTO are to manage and promote international trade in the era of globalization. But the Doha round of negotiations seem doomed due to differences between the developed and the developing countries.” Discuss in the Indian perspective.(UPSC 2016) (200 WORDS, 10 MARKS)