Harming the economy suits India’s adversaries to deal with an impossibly popular Prime Minister virtually unassailable through democratic means.
Rising powers inevitably precipitate a crisis for other nations, especially rivals in their own neighbourhood and beyond as well. Most commentators have been preoccupied with the challenges China poses to the post-WWII world order, which indeed it does. That world order has been reshaped already and a Sino-UN condominium has replaced it, though serious tensions remain over its contours. In this context, Taiwan is a critical issue because its control will re-define relative geopolitical primacy in the Indo-Pacific and its fate will also impact the position of Japan in oceans adjacent to it. This why Japan is girding its loins with the recently announced unprecedented defence preparedness. As a result, a military clash over Taiwan is entirely possible in the contest to define the geopolitics and geography of the condominium taking shape, in an atmosphere of increasing oscillating tensions.
The issue that is only indirectly being addressed and mostly in a superficial way is the geopolitical consequences and response to the projected rise of India in the next generation. India’s advance seems guaranteed though it could conceivably be derailed by its competitors. China clearly wishes to interdict India’s advance and so do Western powers, led by the Anglo-Americans. The Sino-American posture towards India’s rise merits particular and sustained scrutiny. China’s policy is clear now that it has replaced the Anglo-Americans as the principal in control of the military cantonment called Pakistan, created by the departing colonial power Britain. Although only less than half of it remains intact and dismemberment is in prospect, there is a danger China will seize a huge swathe of territory de facto in it. The objects of China’s predatory attention are Pakistan occupied Kashmir and Gilgit and would pose a major security challenge to India.
The concurrent Sino American and Sinophile British policy of some media outlets curbing India’s rise needs to be better understood so more thoughtful policies are in place to overcome it. The first intellectual and conceptual leap of imagination enjoins a need for India’s policy making and social elite to grasp some hard truths. Although the US surely wishes to empower India against China to some degree, illustrated by their agreements over defence technology recently, its earnest wish is to also appropriate major policy-making in Delhi, which it is has so far failed to do. This is why there is simultaneous US endeavour to cooperate with the Government of India as well as attempt to undermine the integrity of its autonomous functioning as a nation. This is where an implicit Sino-American coordination over India becomes a corporeal reality. Both China and a section in the US seek India’s internal disunity and fragmentation. Hence, the insidious cooperation of China with some of India’s parties and also its likely apparent involvement with US agencies, as vividly witnessed over the Adani enterprises misreporting.
India has been caught unawares by the economic campaign unleashed unofficially through Hindenburg. India now needs to step back to evaluate the nature of the challenge and how to fight it off. There is also a possibility that the Chinese government has participated actively in accentuating the downfall of Adani enterprises through deployment of some financial instruments. It would now be useful to pause to identify the fundamental economic dynamics for the predicament of Adani enterprises, beyond attempting to merely apportion blame. Several dimensions can be affirmed to have been in play in the Adani crisis and they are interrelated casually and politically.
Adani enterprises were clearly vulnerable to being shorted, as we know happened with the publication of the Hindenburg report, though it seems Indian rules and the law make it difficult for those in foreign jurisdictions to do so. In fact, this vulnerability was the outcome of the internal operations of Adani enterprises itself and Hindenburg merely took advantage with its well-timed assault. All it needed to do was to cast doubt on the integrity of Adani enterprises and the house of cards fell. The report may have been of doubtful credibility but the situation of Adani enterprises was so precarious that only a slight shove was needed to precipitate a crisis for it.
The consequences of the downfall of the House of Adani clearly suited PRC-friendly American and British policymakers anxious to see Narendra Modi off in 2024. They want to replace him with a more accommodating and compromised Prime Minister, presiding over a fractious coalition in Delhi vulnerable to manipulation. Hence, harming the economy suits India’s adversaries to deal with an impossibly popular Prime Minister virtually unassailable through democratic means. The recent Economist report on India’s allegedly flawed democracy is another pennyworth conspiracy to demonise Prime Minister Narendra Modi yet again.
The key to the vulnerability of Adani’s enterprises, independent of any substantive contestable evidence to question the integrity of its operations, was its status as a “growth stock”. Growth stocks have high P/E ratios and their valuations are very dependent on market sentiment. If doubt can be cast on the integrity of its management, accounting standards and covert buyback insinuated, which has inflated the stock price, the private owners of such a stock, especially retail investors, will worry. They are likely to conclude that the real long-term growth prospects of the enterprise, like in the case of Adani enterprises, is inconsistent with its current very high P/E ratio, since it is all about expectations, And Adani’s P/E ratio was very high indeed, like many US Nasdaq companies, e.g. US Alpha, Amazon stocks, etc. Such a situation, dependent on expectations, makes a company vulnerable to adverse market sentiment and that is apparently easy to manipulate by an organisation like Hindenburg.
All companies with high P/E ratios are therefore vulnerable to such a hit job while companies with P/E ratios closer to the historic market average, so-called “value stocks”, are less likely to suffer setback because their current real earnings are commensurate with the price of the stock rather than projected into the future, i.e., a bet on its expected long term growth prospects. This is the fundamental analysis that was required of the predicament of Adani enterprises.
An opportunity arose to short Adani enterprises and Hindenburg took it with alacrity. It is entirely possible there was wider machination as well between Modi’s domestic adversaries, working in concert with foreign agencies, in the backdrop to India’s impending 2024 general elections. There is rumoured alleged engagement of a former television journalist, hostile to Narendra Modi and nursing an immediate grievance against Gautam Adani, with Hindenburg’s conspirators. In any case, there needs to be concern and regulatory intervention is desirable to address the vulnerability of Indian growth stocks, with high P/E ratios, to adverse market sentiment owing to collusive intrigues.
Perhaps the audit of a company with a P/E ratio a third above the market average might be conducted by an auditor from an approved official list. Unfortunately, this provision may turn out to be insufficient because some of the major auditors have often been mired in scandal. Another crucial change might be requiring the disclosure of the identity of all purchases of a company’s stock by a related party. This would be like the existing reporting requirements of all related party transactions and the price at which they occur.
There is scheming to subvert the India’s economy and sequester its political institutions by foreign adversaries and the proposed Indo-UK free trade agreement (FTA) is another example of such an attempt. It needs to be viewed politically rather than narrowly as an accounting exercise, though the latter does not add up either. The FTA between India and the UK would have a remarkable parallel with the system of Imperial Preference established at the Ottawa Conference of 1932. The system of trade preferences established at the time between Britain and its subservient Dominions was a response to the economic collapse of 1931. Importantly, the Indo British FTA must not constrain trade relations between the India and EU. This situation may arise because the Indo-UK FTA would potentially facilitate back door entry for a post-Brexit UK into the EU as a result of it. The EU would not countenance such a perverse facilitation of British economic interests in the EU in the aftermath of Brexit. It might also be observed the EU as a whole is a much more important trading partner for India than a rapidly declining UK.
Dr Gautam Sen taught international political economy at the London School of Economics and Political Science for more than two decades.