Corruption's long history in India explains the country's failure to live up to its growth potential. US bribery charges against tycoon Gautam Adani should therefore provoke some soul-searching among the capitalist elite. The danger, however, is that businesses learn the wrong lesson from the affair and grow warier of international capital markets rather than cleaning house.
It's hard to think of a more tangible example of graft than agreeing to pay $265 million to government officials to secure overpriced solar power contracts, which is what US federal prosecutors accuse Adani and several others of doing.
His group, led by the flagship Adani Enterprises, has called the charges "baseless" and denied them. Perhaps surprisingly, the allegations are yet to prompt a commensurate outpouring of anger in India, nor any huge rush by its 28 states and eight union territories to review their own renewable energy contracts.
That hints at limitations to Prime Minister Narendra Modi's decade-long fight against graft. His Bharatiya Janata Party swept to power in 2014 with an absolute majority. It pledged good governance after controversies over the allocation of coal blocks and telecom spectrum dogged the previous Congress-led government.
A colourful crackdown ensued. Modi abruptly banned high-value banknotes. Television channels broadcast live footage of police jumping over walls to arrest a former finance minister, while some industrialists lost their crown-jewel assets. Those moguls fell on hard times, causing a bad-debt crisis for banks, which prompted a reset in how tycoons and lenders operate. Naturally, Modi's political rivals were caught in the crossfire too.
The crackdown delivered results even by Western standards. India's score on the Corruption Perceptions Index compiled by Transparency International improved by three points to 39 between 2013 and 2023, beating China's rate of improvement. The US score fell four points.
A range chart showing Corruption Perceptions Index scores for different countries
The problem for Modi and India, however, is that corruption tends to evolve rather than disappear in large and fast-growing economies. Today, the infrastructure-starved South Asian country is pouring concrete at a rapid pace, deafening and thrilling its citizens. In the financial capital, Mumbaikars go out of their way to marvel at new bridges and roads.
Many of the infrastructure admirers believe the construction wouldn't be possible without the developers lining a few pockets along the way. Modi's corruption crackdown has made it harder to dodge taxes, but many people still pay bribes for everyday services or to dodge fines.
True, the Adani accusations, detailed by the US Department of Justice in a 54-page filing, evoke a much older and less sophisticated era of swindling. The indictment alleges that the tycoon was personally involved and that his nephew, Sagar Adani, used his cellphone to track specific details of the bribes offered and promised.
The scandal shines a light on a reality that many global companies would rather ignore. India's $3.9 trillion economy, with its low $2,700 GDP per capita, is full of promise but also a difficult place to do business, like many other developing markets.
Rushing to participate in the energy transition, diversify supply chains away from China or simply to tap consumer growth, foreign companies like BlackRock, BMW and Shein have thrown themselves into partnerships with Indian tycoons. They've implicitly shrunk the political risk premium assigned to investments in the country.
Joint ventures help businesses scale up factories and services faster, but these alliances usually mean ceding control and oversight. France's TotalEnergies, for example, is a 20 percent shareholder in Adani Green Energy and also a joint-venture partner with the under-fire group. On Monday, the oil major said it would not make any new financial contribution to its investments until the accusations and their consequences are clearer.
Rooting out corruption ultimately ought to attract more foreign direct investment, which is shrinking in India. In practice, however, authorities know that going after big targets in any crackdown could have a shorter-term economic hit. India's GDP growth, at 6.7 percent, is already softening.
Absent a renewed push on graft, Indian businesses and government may instead double down on attempts to be more financially self-sufficient, particularly when funding strategic assets like energy. That is not easy for a capital-starved country: Adani is building infrastructure on a scale that many other national tycoons have lost their appetite for, after running into debt problems in the past.
Overall, India's development model relies on five large conglomerates – Mukesh Ambani's Reliance Industries, Tata, Aditya Birla, Adani and Bharti – who align their growth ambitions with the state's needs. These "army generals," and quasi-national champions deliver government-desired projects and infrastructure. The upshot is that projects are accelerated but problems for any of these groups present outsized risks to the economy.
Ultimately, Adani's use of US debt capital markets exposed him to the long arm of the Justice Department, which doesn't mind ruffling feathers of Washington's diplomatic friends and foes alike. The message Indian tycoons are hearing loud and clear is clean up fast or curtail your international ambitions.
