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The Undeniable Rise of Oligarchic Capitalism in Modi’s India

In India’s corporate sector, a select-few family-controlled conglomerates dominate the business scene in an opaque manner, exposing the faultlines of India’s corporate governance system.
Narendra Modi and Gautam Adani at the Vibrant Gujarat summit. Photo: Twitter/Files

A recent article by The Guardian has accused associates of the Adani family spending years discreetly acquiring stock in the Adani Group’s own companies during its meteoric rise to become one of India’s largest and most powerful businesses.

New documents obtained by the Organised Crime and Corruption Reporting Project (OCCRP), and shared with Guardian and the Financial Times, reveal for the first time “the details of an undisclosed and complex offshore operation in Mauritius – seemingly controlled by Adani associates – that was allegedly used to support the share prices of its group of companies from 2013 to 2018. Up until now, this offshore network had remained impenetrable”.

The nature of widespread attention on Adani’s financial dealing evoked global interest since the expose done by the Hindenburg Report accusing the Adani Enterprises of stock manipulation and more. While the mainstream media has remained largely silent on the allegations on Adani’s manipulative dealings and off-shore operations, The oligarchic rise of the firm-and its network across sectors in India and outside, provides a telling tale about the ‘volatile’ state of the relationship between big private capital and the Modi government. 

Roughly two years ago, this author explained how India’s stock market performance, at a macro-level, was witnessing signs of a wild west phenomenon with a range of IPOs or initial public offerings (from Paytm to Zomato) in the fintech space busting flat. Profits were soaring high for a few firms while others, despite low earning, were aiming big in raising cash through IPO’s.

Underlying these volatile, bullish stock trends shaping a K-shaped economic recovery for the economy lies deep-rooted structural concern that many observing the economy miss: the widening discord between the stock market performance of listed firms (or those new to raising capital) and the underlying macro-numbers of their actual performance, P-E ratio, debt positions etc.

In crisis terminology, a growing disconnect between the performance of capital markets and the real economy also signals the formation of a bubble, or a mania. India’s mania problem may accentuate in the future if similar such episodes (what was seen in the Paytm-Zomato instance or the Hindenburg-Adani face-off) continue causing massive selloffs in temporal intervals. 

Also, in explaining the Indian stock market performance behaviour over the last few years, the substantive rise in price-driven expectations or stock prices cannot be explained by any logical deduction, or an objective faith in the evident performance of market fundamentals, or by the strength of an economy’s K-shaped recovery. Rather, it’s explained by the irrational exuberance visible among investors amid short-term capital inflows driven from foreign institutional investors (FIIs), most of which has been ‘hot money’, apart from those invested in form of equity-backed systematic investment plans (SIPs).

Adani’s own rise is built-in or embedded in this pattern of financial capitalism for India. A question pertinent to a lot of observers has been: How long a wild west mentality would continue to grip investor sentiment in stocks (or in Adani’s poster boy image) is difficult to estimate-one can’t predict how investors would react to rhetoric or narrative-fuelled speculative information flows. 

Nevertheless, what is certain is the fact that the underlying performance of the equity market may continue seeing periodic peaks and troughs spaced between short-timed intervals. 

This, therefore, raises a series of fundamental political economy questions for a fragile, disorganised, asymmetric biz-financial landscape like India’s, where the concentration of wealth and profit-generating power is vested in less than top 1% of the oligarchic capitalist class, mostly run as family based conglomerates, while the others (99%) suffer with high prices, stagnating wages, poor employment growth.

The vital political economy questions on the state-private capital relationship

Noted political economist Atul Kohli, in his work on politics of economic growth in India (1980-2005 period), provided a detailed insight into the ‘political’ and ‘political economy’ landscapes shaping India’s growth trajectory during the 1980s, 1990s, and 2000s. 

His work highlights the essence of seeing India’s entry to the global economic landscape (in the 90s) as a product of incremental, gradualist reforms of the 80s based on attitudinal shifts observed in the ‘state-capital-private business’ relationship.

What’s central to the pursuit of Kohli’s thesis is a theoretical (more abstract) question: Did India’s growth acceleration (during the 1990s, 2000s) resulted from the (nation) state’s embrace of neoliberal (or pro-market) policies, or from some more complex but identifiable pattern of state intervention?

The 1991 and post-1991 period is understood as part of the pro-market growth trajectory where pursued economic reforms-undertaken more on the capital market side-allowed our ‘markets’ to operate more freely, flexibly in certain sectors (telecom, automobiles, aviation, IT, construction, consumer goods etc.) with the aim to crowd in private investment opportunities. 

It is true that a push for market-led growth allowed economic possibilities and upward income mobility for higher income classes across the nation, even though the distributive end of any such growth-accrued gains failed to allow greater income (and social mobility) amongst the more vulnerable, economically depressed classes. Welfare distribution or essential social expenditure wasn’t prioritised in fiscal policy for most of the 90s and thereon. 

Nevertheless, from this period onwards, one saw a strengthening of the ‘state-capital-private business’ alliance like never before, often at the cost of preexisting social and economic protection available to India’s deeply fragmented labor force. 

The Adani-Modi alliance based on a newly designed ‘pro-business’ regulatory outlook emerging from the BJP’s rise to power at the national level post 2014 signals a similar phase in theory, but with a new twis.

As Adam Tooze argued in a column, Driving national infrastructure development (in India), Adani personifies the oligarchic linkages and rentier profits generated by licensing system for infrastructure on which Modi’s growth model has heavily relied.” 

A lot written and said about the success of the ‘Gujarat growth model’ pivoted around the emergence and wider presence of such network linkages and rentier profits, driven by large capital infra-investment from firms like Adani’s, which, ever since Modi became PM, entered the national scene. 

Adani’s growth has been driven by a cycle between rising equity values and corporate debt. Already In 2014 Gautam Adani boasted that his deals were “immensely bankable”.

As the FT noted back in 2020: “Some argue the concentration of economic power in family-run conglomerates is a way to fast-track India’s economic development, like the chaebol did for post-war South Korea.” 

Also read: Why the Modi Government Policy of ‘National Champions’ Is Unravelling

It is true that family-run businesses have been important in India’s business historical landscape always, but never before have any one or two large conglomerates, holding large assets, been this debt-exposed the corporate sphere to borrowings from state-run banks, public exchequer money at this level. It signals the realisation of a ‘too big to fail syndrome’ for certain institutions, which will make foreign investors more wary from investing in India (FDI levels as a result have already been quite volatile).

In New India’s state-big business compact, the extent to which big capital firms like Adani’s are exposed to national asset classes, financed/depended on the exchequer (or citizen tax money) requires greater scrutiny. State-owned banks have already lent twice as much to the Adani group as private banks, with 40 per cent of their lending being done by SBI. This irresponsibility has exposed the crores of Indians who have poured their savings into LIC and SBI to financial risk. 

To summate, a short reflection on the probable trajectory state of India’s political economy state, amidst all this news is deeply warranted. 

In a column written few years ago, this author also argued that India’s growth trajectory and state-private capital relationship was reflecting common traits with 1980s Latin America and the Russia of 1990s, amidst a rise in crony like oligarchic capitalism, where an ad-hoc ‘pro-business’ policy outlook was making certain firms to monopolise asset ownership, rent-extraction at the top level (with support of the government), while cutting down on competition and the entry of new firms, across sectors. 

Adani’s meteoric rise in the India’s corporate governance space under Modi’s umbrella support – much like Ambani’s – has been part of shaping that oligarchic trajectory, which is worrisome for the ills of monopolistic influence on in-equalising India’s already divided K-shaped growth pattern. The issues, raised here, strike at the heart of the India’s corporate sector, its financial-capital scene, where a select-few family-controlled conglomerates dominate the business scene in an opaque manner, exposing the faultlines of India’s corporate governance system and the shallow-functioning of a weak, anti-competitive regulatory structure. 

Deepanshu Mohan is Professor of Economics and Director, Centre for New Economics Studies, O.P. Jindal Global University. He is a Visiting Professor to the School of International Development and Global Studies, University of Ottawa, Canada, and an Honorary Research Fellow, Birkbeck College, University of London this Fall.

A version of this piece was first published on The India Cable – a premium newsletter from The Wire & Galileo Ideas – and has been republished here. To subscribe to The India Cable, click here.

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