Setbacks for Adani cast shadow on India’s soft power

BENGALURU/BANGKOK — New Delhi’s soft power diplomacy to counter China’s growing clout is facing headwinds, experts say, as Indian conglomerate Adani Group recently suffered a series of setbacks in its global ambitions.

Lower middle income countries like Kenya and Sri Lanka have snubbed the conglomerate’s investment proposals running up to $3 billion since November, after the U.S. indicted Gautam Adani, billionaire and chairman of the group, and other group executives on bribery charges. The company is also at loggerheads with the government of Bangladesh over a power supply deal.

Adani’s business interests mirror Indian Prime Minister Narendra Modi’s vision of molding his country into an economic powerhouse, which requires upgrading the country’s infrastructure, including roads, railways and logistics networks. Not only did Adani emerge as a key enabler of India’s infrastructure makeover over the past decade, his conglomerate is setting up bases in locations that are important to India’s geopolitics.

The Adani Group operates a port in Israel, a key defense exporter to India, and is building one in Sri Lanka, where China has already made significant investments in ports and committed $3.7 billion for an oil refinery. The group also operates a container terminal in Tanzania while the Indian government strives to gain influence on the African continent.

“The conglomerate is crucial to the diplomatic strategy as it is one of the few Indian companies that has the competencies and experience needed for critical infrastructure and energy projects,” said Bhaskar Chakravorti, dean of global business at the Fletcher School of Tufts University in the U.S. “And the company leadership sees eye to eye with India’s political leadership.”

The conglomerate has been alleged to have benefitted from its close ties with New Delhi. Its tryst with Sri Lanka is a case in point.

Israeli Prime Minister Benjamin Netanyahu, right, and Indian billionaire Gautam Adani attend an ceremony after Adani Group completed the purchase of Haifa Port in Israel in January 2023.   © Reuters

On Feb. 14, Adani Group said it would pull out of wind power projects in Sri Lanka that entailed investments of about $440 million. That followed the newly elected Sri Lankan government’s decision to review tariffs, in line with President Anura Kumara Dissanayake’s campaign promise to reexamine power sector deals and renegotiate contracts.

In June 2022, three months after the Ceylon Electricity Board, a government-owned electricity company, inked the deal with Adani Group, M.M.C. Ferdinando, chairman of CEB, told a parliamentary committee on public enterprises that the Sri Lankan government faced pressure from India to grant tenders for renewable projects to Adani Group.

Ali Sabry, a former foreign minister who was in office when the deal was signed, had called it a “government-to-government agreement.”

Last week, Dissanayake called out Adani’s high tariff, saying “offering a project for $0.08 [per unit] cannot be justified.”

“Adani’s decision to withdraw is a boon for National People’s Power (the ruling political alliance) locally, since it did not cancel the deal and it can now put this project up for tender,” said Murtaza Jaffeerjee, chairman of Advocata Institute, a Colombo-based policy think tank. “Sri Lankan consumers will be better served with green energy if there is competitive bidding.”

Chakravorti of the Fletcher School said, “This could slow down some of the soft-power outreach,” referring to the conglomerate’s troubles on foreign shores. “But memories will be short if the bid is good and the Modi hug with the head of state is tight enough.”

Michael Kugelman, director of the South Asia Institute at the Wilson Center, a Washington-based think tank, said that Adani running into problems in Sri Lanka and Kenya is “particularly concerning, given that these are two key partners … and both in regions where it is looking to deepen influence and compete with China.”

Protesters in Colombo demonstrate in front of the Ceylon Electricity Board’s head office on Jan. 4, 2023, to demand it stop the sale of properties to Adani Group.   © Getty Images

Such setbacks have also raised questions about Adani’s overseas expansion.

“If Adani’s international expansion in countries like Kenya, Sri Lanka and Bangladesh are in trouble, what are the chances they can pursue opportunities in Europe and America? Very, very minor,” said Nirmalya Kumar, professor of marketing at Singapore Management University. “His global ambitions are definitely constrained.”

But things could turn dramatically in the conglomerate’s favor with U.S. President Donald Trump halting the enforcement of the Foreign Corrupt Practices Act (FCPA), which prohibits Americans from bribing foreign officials to get business.

The U.S. Securities and Exchange Commission had used that law in November to charge an executive at renewable energy company Azure Power for joining Adani Group executives in bribing Indian government officials. Adani and his nephew, Sagar, were charged under the Securities Act and Exchange Act.

Soon after the indictment, Adani Group called off a nearly $600 million bond sale. French oil major TotalEnergies said it will halt further investments in Adani Group until the consequences of the allegations are clarified, signaling that the conglomerate could struggle to court Western investors.

Adani has denied any wrongdoing. He announced after Trump’s election that his conglomerate would invest $10 billion in the U.S. and create 15,000 jobs, without specifying any timeline.

“If that (the FCPA) gets Adani legal relief, investor interest in his activities could see an even bigger surge,” said Kugelman. “It’s a massive empire, and its capital is deployed in fast-growing spaces that everyone wants to be a part of these days, like infrastructure and clean energy.”

source : asia.nikkei