bardhan10_MONEY SHARMAAFP via Getty Images_adani MONEY SHARMA/AFP via Getty Images

Unmasking India’s Crony Capitalist Oligarchy

A report by New York-based Hindenburg Research has intensified scrutiny of the accounting practices of India’s Adani Group, owned by billionaire Gautam Adani. But the real problem is a much bigger one: the symbiotic relationship between business and political elites under Prime Minister Narendra Modi.

BERKELEY – The recent allegations of accounting fraud and stock manipulation against Indian multi-billionaire Gautam Adani made by Hindenburg Research, a New York-based short-selling firm, has startled many in the financial world. The episode is a necessary reality check for those who are expecting India’s star to burn brighter in the global economic firmament as China’s dims.

The allegations have highlighted some of the systemic issues that plague the Indian economy and often go ignored, particularly its extreme inequality and corporate concentration. A small slice of the economy produces capital- and skill-intensive goods to meet the demands of the wealthy, whereas most other sectors by and large suffer from insufficient demand and weak productivity, resulting in low aggregate investment and high unemployment.

Economic wealth is concentrated in the hands of a few conglomerates. Marcellus Investment Managers has estimated that the 20 most profitable firms in India generated 14% of total corporate profits in 1990, 30% in 2010, and 70% in 2019. Most evidence suggests that increased profits were due to market power rather than innovation or large productivity gains, while some commentators consider this corporate inequality to be a factor underlying the disconnect between the Indian stock market and the real economy.

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