The Adani Indictment and the Peril From ‘Modani’

Modi’s closest crony complicates US-India relations as Trump takes over

By: Nirupama Subramaniam

The US government indictment of Gautam Adani, the 62-year-old Indian billionaire whose multinational conglomerate spans businesses from coal mining to renewable energy, military hardware, media, and food, poses a surprising new setback for the Modi government, appearing to weaken India's standing with Washington in the weeks before President-elect Donald Trump takes charge.

Coming alongside Kenya's cancellation of Adani projects over corruption allegations, and challenges to his deals in Sri Lanka and Bangladesh, the indictment of Adani, his nephew Sagar Adani, a company executive named Vneet Jaain, and five other Adani employees, for fraud and violation of the US Foreign Corruption Prohibition Act, has heightened concerns that the businessman's proximity to Prime Minister Narendra Modi has exposed India's strategic vulnerabilities.

In two court filings – a Department of Justice indictment of Adani and the others on five counts, and a civil complaint by the Securities Exchange Commission – the eight have been accused of committing fraud by misrepresenting to US investors the the Indian company's anti-bribery and corruption practices. They are charged with concealing an “elaborate scheme of bribery” from US investors and international financial institutions in order to obtain financing, including to fund solar energy supply contracts procured in India through bribery.

The alleged bribes were paid or promised to top officials in Indian states as “incentives” to persuade them to buy power from a solar project launched by Adani Green Energy Ltd, the industrialist's renewable energy company.

Adani is a close friend of Modi. His meteoric rise has coincided with Modi's decade in office. When Modi first arrived in Delhi after his 2014 election victory, it was in a private jet emblazoned with Adani's name across its fuselage. Proximity to Modi helped him bag projects abroad. He became the face of India's efforts to rival China's infrastructure push in the South Asian region and beyond. Accusations of crony capitalism against Modi and Adani have been loud, and the opposition Congress party now uses the moniker “Modani” to describe the two friends.

The government has been quiet on the charges, but the BJP is struggling to distance itself from Adani's troubles. After the indictment, party spokesman and parliamentarian Sambit Patra said “the law will take its own course.” But with Congress raising the issue in parliament, which has led to disruptions of the assembly, another BJP parliament member, Mahesh Jethmalani, a well-known lawyer, rose to the tycoon's defense, describing the charges as “politically motivated” and a “conspiracy to halt India's growth story.”

Adani took the same nationalistic line last year after Hindenburg, a forensic financial company, accused him of pulling off the “largest con in corporate history” by “brazen stock manipulation and accounting fraud scheme over the course of decades,” coating The company about US$100 million in market valuation. This time the hammering at the stock market, estimated at over US$30 billion, has been less severe, especially after Jethmalani and another prominent lawyer, Mukul Rohtagi, declared that the two Adanis named in the indictment were not accused of bribery but only of committing fraud. The statements, though economical with the truth, appeared to reassure the market as Adani shares have risen since.

But it is clear that neither lawyerly obfuscation nor recourse to nationalist rhetoric can help shrug off the indictment in the same way that the Hindenburg report was dismissed as the handiwork of a short-seller. Credit rating agencies such as Moody's and Fitch have downgraded the outlook for several Adani firms, citing increased capital costs and reduced access to finances. Arrest warrants are out for both indicted Adanis. Congress leader Rahul Gandhi has demanded the tycoon's arrest for violating laws in India and the US.

Worldwide, Adani investors are examining the company's projects anew. TotalEnergy, the French petroleum company, which has major investments in AGEL, announced that until the individuals named in the indictment are cleared, it wouldn’t be making any more investments in the company. The US Development Finance Corporation, which last year announced a US$550 million investment in a terminal development project at Colombo Port in Sri Lanka – wrangled out of Sri Lanka by India to rival Chinese projects at the same port – said earlier this week it was still conducting due diligence.

For India, it is unprecedented that the country's top industrialist and its richest man, who is also the prime minister's buddy, is now wanted by US law enforcement agencies. In Washington, asked a question about the possible impact of the charges against Adani on the India-US relationship, the White House spokeswoman said “we believe and we're confident...that we'll continue to navigate this issue, as we have with other issues that may have come up.”

What course the navigation will take is unclear. But Delhi will be hoping that US President-elect Donald Trump will make the case go away quickly, when he takes over in January. Unless that happens, distrust between the two sides, already setting in during the Biden administration, is likely to grow. In October, an official at India's external intelligence agency, the Research and Analysis Wing, was indicted for conspiracy to kill a US citizen in New York. The target was a Sikh human rights advocate and a campaigner for Khalistan. The plot was discovered, and the conspiracy was aborted.

Brahma Chellaney, an influential strategic thinker and commentator, tweeted that the indictment of Adani, would “roil US-India ties” as “the real target seems to be Modi.”

India's relations with the US, which have gained a solid footing over the past two decades, continued to improve during the Biden Administration but have not been smooth. Delhi has walked a tightrope since the war in Ukraine began, trying to balance its long ties with Russia with its relatively newer relations with the US. This balancing act was seen as a sign of India's new confidence in the Modi era. To the Biden Administration and other western partners, India justified its refusal to condemn Russia's war and its subsequent purchase of Russian oil as an act in India's national interest. Modi also visited the US, solidified old agreements, and signed new ones, riding on the US view of India as a bulwark against China in Asia.

As tensions brewed from last year over the Pannun case, Indian diplomats were confident that it was only a wrinkle, even though the charges, with apparent links to a murder case being prosecuted in Canada, question the credibility of India's security establishment. The matter has clouded the Modi-Biden relationship in the outgoing US president's final months in office. The optics of Modi's presence at the Russia-China-dominated BRICS summit seemed to be a message to Washington not to take India for granted. The Adani case threatens that positioning, unless, of course, the Prime Minister distances himself from it altogether.

More likely though, Delhi will be hoping that the incoming Trump administration can ease the situation. India views Trump 2.0 without the dread of America's western allies. Modi and Trump got along well in Trump's first presidency. Trump came to India in February 2020 to attend the inauguration of Narendra Modi stadium in Ahmedabad. Later that year, Modi endorsed Trump ahead of the 2020 US elections at an Indian diaspora event in Texas, called Howdy Modi. The president-elect's non-inclusion of India in his list of countries to be slapped with higher tariffs as soon as he takes over is being seen as an encouraging sign.

The Modi government's hopes for safely retrieving Adani from the US doghouse are now dependent on Trump, the “master of the deal.” Both critics and opponents believe Modi can pull off a deal with the new president to end Adani's troubles. That means Trump will begin with a strong hand against India. The question now is: what price would India have to pay to get Modi's friend off the hook?