On January 24, Indian businessman Gautam Adani came to the limelight in an unprecedented manner as a report by Hindenburg Research Firm alleged him of fraud and financial misconduct. The report accused Adani of leveraging his political connections to get favourable treatment from Indian regulatory agencies, particularly in terms of taxes, subsidies, loans and other incentives for his businesses.
Adani held the position of the third richest man in the whole world before the report. But after the Adani scandal, the value of shares of Adani Group rapidly plummeted and pushed him down to 21st as of February 10, Forbes and the Bloomberg Billionaires Index.
The scandal has sparked outrage among the Indians who accuse him of exploiting his position for personal gain. The report alleged that Adani had taken advantage of loopholes in the regulatory framework and used political influence to obtain billions of dollars in subsidies, loans and incentives from the Indian government. Furthermore, the report alleged that Adani had used these funds to expand his business empire at a rapid rate and create an oligopoly in certain industries.
The Indian government has responded to the Adani scandal by launching an investigation into Adani’s business dealings and ordering multiple audits of his companies which may not be enough.
In the meantime, the confidence of European, American and Asian investors in the Indian market has been badly shattered. The Adani scandal has highlighted a need for increased transparency and regulatory oversight in the Indian corporate sector. Following the scandal, foreign investors are likely to be more cautious when investing in India, seeking assurances that their investments will be secure and that any deals with the Indian government will be fair and transparent.
There also have been ripple effects on the activities of regulating agencies and investors of share markets of neighbouring countries including Nepal who should be more cautious.
Potential solutions
The Adani scandal has caused widespread uncertainty among investors. The lack of transparency and accountability within the Indian business sector is a major concern that needs to be addressed urgently. If the scandal is not adequately addressed, it could have several detrimental effects on Indian companies struggling to attract foreign investments and, in turn, hampering India’s economic growth.
The Adani scandal should be widely condemned by Indian civil society organisations and activists, who can accuse him of exploiting his political connections to gain unfair advantages at the expense of Indian citizens. The government should take the current crisis seriously as Adani’s actions will have a negative effect on the economy as a whole, leading to a loss of potential jobs and investments.
The Securities and Exchange Board of India (SEBI) should look deeply into any potential violation of Indian securities laws or any conflict of interest in the share sale process.
The Adani scandal has exposed major flaws in India’s regulatory framework and has highlighted the urgent need to ensure fair and transparent business practices. Companies may need to provide additional information such as audits and financial statements in order to regain the trust of investors. In addition, companies should be made compliant with Indian laws and regulations and ensure that all information regarding their dealings with the government is readily available for public scrutiny. The government also need to introduce tighter regulations on corporate tax avoidance and subsidies, as well as strengthen their regulatory framework to prevent similar occurrences in the future. Ultimately, the Indian government must work to create a stable and transparent business environment in order to attract foreign investors to prevent itself from the harmful impact of the Adani scandal.
Lessons for Nepal
The Nepal government, the Securities Board of Nepal (SEBON) and the Nepal Rastra Bank can learn several important lessons from the Adani scandal. The responsible regulating actors should be proactive in ensuring the transparency and integrity of the market. This includes implementing measures such as more stringent disclosure requirements and stricter oversight of corporate governance practices. In addition, the regulating bodies should ensure that it is responsive to any allegations or scandals that may arise and take swift action to investigate and enforce any wrongdoings.
Furthermore, regulation should focus on ensuring accountability by companies for their financial statements and operations. Companies should be required to provide meaningful disclosure regarding their finances, business operations, ownership structure, internal controls and other relevant information to help protect investors from potential fraud or mismanagement. Additionally, SEBON can implement stringent measures to ensure that corporate profits are not overstated and insider trading is prohibited.
Moreover, Nepal’s share market regulators should be aware of the potential ripple effects of the Adani scandal or any scandals or regulatory changes in India. Any negative news regarding Indian share markets or the Indian economy could cause a decrease in the confidence of Nepali investors in the domestic market.
Nepal’s share market regulators should take a lesson to maintain effective communication with other regulatory bodies around the world in order to be aware of potential threats and opportunities related to the domestic markets. By doing so, they can ensure that their own markets remain secure and that investors are adequately protected from potential fraud or mismanagement.
