How are the US fraud accusations against itself affecting India’s economy and politics?

Gautam Adani, who just weeks ago became one of the richest men in the world, They celebrated Donald Trump’s election victory and announced plans to invest $10bn (£7.9bn) in energy and infrastructure projects in the US.

Now, the 62-year-old Indian billionaire and close ally of Prime Minister Narendra Modi, whose $169 billion empire spans ports and renewable energy, faces US fraud charges that could potentially jeopardize his ambitions at home and abroad.

Federal prosecutors accused him of plotting an assassination attempt $250 million bribery scheme and keeping it to raise money in the US. They allege that Mr. Adani and his executives bribed Indian officials to make $2 billion in profits over 20 years. Adani Group denied the allegations, calling them “baseless”.

However, this situation is already damaging the group and the Indian economy.

Adani Group companies lost $34 billion in market value on Thursday, reducing the total market value of its 10 companies to $147 billion. Adani Green Energy, the company at the center of the allegations, also said it would not proceed with its $600 million bond offering.

There are also questions about the impact of the accusations on India’s business and politics.

India’s economy is deeply intertwined with Mr Adani, the country’s leading infrastructure tycoon. It operates 13 ports (30% market share), seven airports (23% of passenger traffic) and India’s second largest cement business (20% of market).

With six coal-fired power plants, Mr. Adani is India’s largest ruling private player. It has also pledged to invest $50 billion in green hydrogen and operates an 8,000 km (4,970 mi) long natural gas pipeline. It is also building India’s longest highway and redeveloping India’s largest slum. It employs more than 45,000 people, but its work impacts millions across the country.

Its global targets include coal mines in Indonesia and Australia and infrastructure projects in Germany. Africa.

Mr. Adani’s portfolio closely reflects Mr. Modi’s policy priorities, starting with infrastructure and recently expanding to clean energy. He has succeeded despite critics who have labeled his business empire as crony capitalism and pointed to his close ties to Modi as both the chief minister of Gujarat and the prime minister of India. (Like any successful businessman, Mr. Adani has established ties with many opposition leaders and invested in their states.)

“These (bribery allegations) are huge. Mr Adani and Modi were inseparable for a long time. This will impact India’s political economy,” says Paranjoy Guha Thakurta, an Indian journalist who has written extensively about the business group.

The crisis also comes as Mr. Adani has spent nearly two years rebuilding his image following a 2023 report by U.S. short seller Hindenburg Research. report He accused his conglomerate of stock manipulation and fraud for decades. Although Mr Adani denied the allegations, the allegations triggered a sell-off in the market and ongoing investigation by India’s market regulator SEBI.

“Mr Adani is trying to improve his image and demonstrate that previous allegations of fraud made by the Hindenburg group are untrue and that his company and its businesses are actually doing quite well. There have been a number of new deals and investments over the past year and so this is nothing short of a massive blow to this billionaire who has done a very good job of recovering from the potential damage of previous bets,” Michael Kugelman of the US think tank Wilson Center told the BBC he said:

For now, raising capital domestically could prove challenging for Mr. Adani’s cash-guzzling projects.

“The market reaction shows how serious this is,” independent market analyst Ambareesh Baliga told the BBC. “Adanis will still continue to provide financing for its major projects, but with delays.”

The latest accusations could also deal a blow to Mr. Adani’s global expansion plans. He has already been challenged in Kenya and Bangladesh over a planned scheme. takeover of an international airport and a controversial energy deal. “These (bribery charges) are stalling international expansion plans linked to the US,” Nirmalya Kumar, Lee Kong Chian Professor at Singapore Management University, told the BBC.

What’s next? Unsurprisingly politically, opposition leader Rahul Gandhi called for Adani’s arrest and promised to mobilize parliament. “Bribing government officials is not new news in India, but the amounts involved are staggering. I suspect the US has the names of some of the intended recipients. This has possible repercussions on the Indian political scene. More will come,” believes Mr. Kumar.

Mr. Adani’s team will undoubtedly mount a top-notch legal defense. “For now we only have the indictment, there is a lot more to be announced,” Mr. Kugelman says.

Mr. Kugelman says U.S.-India business relations may face scrutiny, but it is unlikely to be significantly affected, especially given the recent $500 million U.S. deal with Mr. Adani for a port project in Sri Lanka. Despite the serious allegations, US-India trade relations remain strong.

“The US-India business relationship is a very large and multi-faceted relationship. Despite these very serious allegations against someone who is such a major player in the Indian economy, I think we should not overestimate the impact this could have on this relationship,” Mr. Kugelman says.

It’s also unclear whether Adani could be targeted despite the U.S.-India extradition treaty, as that depends on whether the new administration allows the cases to proceed. Mr Baliga believes this is not doom and gloom for Adanis. “Given that they are part of very important, well-performing sectors of the Indian economy, I think foreign investors and banks will still support them like they did after Hindenburg,” he says.

“The perception in the market is that maybe this will go away and be resolved once (Donald) Trump takes over.”