With the world's largest population and the fifth-largest GDP, India stands as a cornerstone of the global economy, blending immense human capital with rapid economic growth to shape international markets and policies. However, the recent Adani scandal highlights India's lax regulatory framework, raising concerns about foreign direct investment and exposing vulnerabilities in the broader landscape of emerging economies. Following an overview of the scandal and the current state of India’s economy, this article will dive into the implications for investor confidence, the challenges of regulatory reform, and the broader impact on emerging markets’ economic stability and growth prospects.

The start of India’s growth

Similarly to many other Asian countries, serious economic growth in India can be linked to its economic liberalisation in the 1990s. From 1994 to 2013, India’s GDP grew by 142% as the country embraced liberalisation, expanded its technology sector, and boosted trade. Its population followed a similar trend exploding from 870.5mln in 1990 to 1.43bln as of the end of 2024. 

Gross Value Added per Sector (in billions of USD)
​Source: Factset

​India’s shift towards a free-market economy allowed capital inflows through foreign direct investment, and today ranks 63rd in the World Bank’s “Ease of Doing Business Report” (up 79 places since 2014). This is reflected in the nearly $71 bln in foreign direct investment that has flown into India in the FY24 compared to about half ($44 bln) in 2014. Amongst the largest investors in the Indian economy are Mauritius, Singapore, and the United States. 

This great investment has helped India develop all its sectors: the sustained levels of FDI over the past 30 years have repositioned India away from its heavy reliance on agriculture, making Professional Services India’s largest sector (54.71% of its GDP). As illustrated in Graph 1, the bulk of India’s GVA growth has been driven by fields such as Professional Services, encompassing Trade, Hotels, Transport, Communication, and Broadcasting; Financial, Real Estate, and Professional Services; as well as Public Administration, Defense, and other Services. 

Adani’s Role in India’s Growth

As India’s production and productivity grew, so did Indian corporations. The Adani Group, founded in the late 1980s by Gautam Adani, is a notable example of this growth. Originally a commodity trading business, the Adani Group grew into the biggest Indian multinational conglomerate with a market cap of over $200 billion, making its founder the 27th richest man per Forbes. Although over 60% of Adani Group’s revenue comes from coal, its portfolio spans airports and seaports, electricity transmission and generation, mining, food, weapons, natural gas, and infrastructure. The group also encompasses nine companies listed on NSE & BSE (National Stock Exchange of India and Bombay Stock Exchange), underscoring its broad economic footprint.

India’s reliance on the Adani Group is significant, with Bloomberg data showing that 43% of all shipping containers in India and a third of all coal transported are handled by Adani. Additionally, 22% of private thermal power capacity, the largest number of solar and wind plants, and 51% of India’s private electricity transmission fall under the conglomerate. Adani airports transport an estimated 75 million people annually. Beyond its infrastructure dominance, the Adani Group has contributed to India’s renewable energy goals, with Adani Green Energy signing the “largest solar PPA in India since 2020.” Upon completion, the Khwada Solar Park is expected to become “the largest operational PV project in the world,” furthering India’s transition toward sustainability under Prime Minister Narendra Modi’s vision.

Past scandals and controversies

Despite the widespread optimism and bold claims, Gautam Adani faces multiple fraud indictments brought by a US court. The Indian billionaire is facing charges on many fronts, including his alleged role in bribing officials in India and securities fraud. The Adani Group has released a statement addressing the allegations as ‘baseless’, but prosecutors claim that Mr Adani and six other executives, one of which being his nephew, have paid upwards of $250mln in bribes to secure state-backed contracts for Adani Green: the group’s renewable energy company. ​

Surprisingly, this is not the first time the conglomerate has been troubled by outside allegations. A similar scandal took place on January 24, 2023, following the release of investment research firm Hindenburg. The 2-year-long report accused Adani’s companies of accounting fraud and stock manipulation for decades. Briefly after the release of this report, an estimated $82.9 bln loss was spread among its listed companies. Similarly, after the most recent indictment from US prosecutors, around $27bln was wiped off Adani companies, and credit agency Fitch Ratings downgraded seven Adani entities. 

The severity of the allegations lies in the criminal nature of the charges brought by the US, particularly as Adani’s stake in the Khwada solar project was funded through investments from US investors. In September 2024, the French energy multinational TotalEnergies invested $444 mln into a joint venture with Adani Green Energy for a 50% stake in the previously mentioned Khvada solar park. Wall Street investors (along with French investors) are said to have ‘poured several billion dollars into the project’ for the last five years, proving extremely problematic due to the accusation of Adani breaching antifraud provisions of federal securities laws (securities fraud) by providing false information to US investors and hiding illegal payments. The case built-up seems considerably sound given that investigators claim to have texts, emails, and presentations. 

A pressing question remains: what lies ahead for Gautam Adani? Adani has not been arrested, and his current whereabouts are unclear, though he is believed to be in India. Even if he is extradited or he voluntarily surrenders to the US, a trial could still be far off. If convicted, Adani could face decades in prison alongside significant monetary penalties. For now, a court directive requires Adani to respond to US SEC allegations within 21 days.

Global Repercussions of the Adani Scandal

The indictment of Gautam Adani by US federal prosecutors has sent shockwaves through global markets, prompting widespread reconsideration of the conglomerate’s current and future international business prospects. Beyond the immediate legal and financial turmoil, the scandal underscores the vulnerabilities of relying on corporate titans in geopolitics and the potential fallout among stakeholders worldwide. Adani Group’s vast portfolio of overseas investments, spanning critical infrastructure projects from Vietnam to Israel, now faces mounting uncertainty and increased scrutiny. Kenya’s prompt cancellation of $2.6 billion in contracts following the indictment exemplifies a broader reassessment by governments of their dealings with Adani. For countries such as Sri Lanka and Bangladesh, where Adani-backed projects were already met with local scepticism, the indictment offers a convenient exit route from controversial agreements.

In neighbouring Bangladesh, relations with the Adani Group have soured dramatically. Earlier this month, the conglomerate threatened to cut off power supply over unpaid electricity dues exceeding $850 million. The crisis has amplified perceptions that the country’s former leader, Sheikh Hasina, had signed lopsided agreements with Adani, further fueling narratives of broader economic mismanagement. Investors are also wary of potential downgrades in Adani Group’s credit ratings, which could further complicate its access to capital. The fallout is felt not just by the Adani Group but by a network of stakeholders ranging from international lenders to local communities. Western companies co-investing with Adani, such as TotalEnergies, now face the dual challenge of mitigating financial exposure and maintaining their reputations. Governments previously engaged with Adani for critical infrastructure projects risk political repercussions if perceived as complicit in controversial dealings. For India, the scandal threatens to damage its economic credibility on the global stage. With Adani serving as a de facto ambassador of Indian enterprise abroad, any setback to his conglomerate risks broader implications for foreign direct investment (FDI) and trust in Indian companies.

Regulatory Gaps and Corporate Misconduct

The Adani scandal highlights significant gaps in India’s regulatory system, which has struggled to keep pace with the country’s ascent to the fifth-largest economy. In 2023, the Hindenburg report that accused the Adani Group of stock manipulation and accounting fraud prompted an investigation by the Securities and Exchange Board of India (SEBI). However, SEBI faced criticism for its slow response and perceived leniency, even issuing a notice to Hindenburg alleging collusion in shorting Adani stocks. The scandal also exposed the exploitation of offshore funds in tax havens, a strategy Adani has reportedly employed multiple times. This practice is increasingly common in India, where corporate tax rates are relatively high at 30% for domestic companies and 35% for international firms. As a result, many companies have resorted to setting up accounts in jurisdictions like Mauritius, the Cayman Islands, and Singapore. A similar incident occurred in 2019 involving DHFL, a major housing finance company, which siphoned approximately $4 billion into shadow accounts in tax havens. In both cases, regulators struggled to detect and effectively address fraudulent activities.

This scandal also underscores the perennial corruption that has plagued India’s reputation as a place to do business. Paying bribes to key officials aligns with a broader pattern in India where corporations have often influenced decisions to their advantage, at the expense of transparency. While India has enacted legislation such as the Prevention of Corruption Act and the Lokpal Act to fight corruption, the systemic failure in monitoring interactions between corporate entities and government officials remains a challenge. The Central Bureau of Investigation (CBI), tasked with this role, has been criticized by Modi’s political opponents for allegedly being used as a political tool through selective actions, even being referred to as a “caged parrot.”

Geopolitical Implications and Strategic Alliances

Delving further into Modi’s relationship with Adani, their close public ties are evident. Adani’s several companies have been crucial to Modi’s plan to improve India’s infrastructure, with investments spanning mining, ports, and renewable energy. Modi’s administration has championed “ease of doing business” reforms and used Adani’s developments as success stories of India’s future. However, the scandal threatens this narrative. Modi will likely attempt to distance himself from the Adani Group and pursue a quick settlement of the issue with the US Department of Justice. Given Modi’s amicable relationship with the previous Trump administration, he may employ diplomatic measures with the newly elected US president.

As international investors increasingly view India as a safer alternative to a corrupt China, this scandal raises fresh questions about the credibility of Indian regulators and key figures. It also reflects a broader trend of declining confidence in emerging markets. Foreign direct investment (FDI) has been a significant driver of India’s growth since the start of the century, but the Adani scandal poses a threat to India’s ability to attract FDI, particularly in sustainable investments. Adani’s alleged bribery to secure contracts for a solar and wind farm as part of his renewable energy business is especially concerning, as this sector is vital for India’s sustainable development goals and a major magnet for FDI.

While India remains the third-highest polluting country behind China and the US, it accounts for 7% of global emissions—a share that will only grow as the country develops. India’s position as a global power and key destination for foreign capital places it under intense scrutiny. Controversies like the Adani scandal may lead to heightened awareness among international rating agencies and financial institutions, potentially resulting in reduced capital inflows or higher borrowing costs for Indian firms. Despite these concerns, it is unlikely that this single instance of fraud will have significant long-term effects on India’s development. The fallout should instead serve as a reminder to the Indian government to strengthen regulatory bodies, ensure transparency in financial reporting, and tackle corruption effectively.

Is the Indian Honeymoon ending?

Unlike other emerging markets, India has displayed a relentless bull run since the pandemic. The economy experienced an 8.2% growth during 2024, compared to 2.9% in the US during the same year. These impressive results have been driven by a significant improvement in agriculture (+15% to economic growth), strong construction activities, and industrial finance, as well as macro-drivers such as increasing urbanization, rising wealth, a strong infrastructure push by the government, and a manufacturing sector gaining traction under supply chain diversification. 

However, investors are now increasingly fearing that this “Indian Honeymoon” has come to an end, in the face of weak corporate earnings, signs of an economic slowdown (sluggish urban demand), and increasing moves by central banks to curb excessive retail lending. Moreover, geopolitical tensions and escalating conflicts are posing risks to India’s external sector through spillover effects, which might affect spending intentions on durable goods.

Post-Pandemic Challenges for Emerging Markets

Since the 2000s, when economists coined the term “the rise of the rest,” emerging markets have been the engines of global economic growth. In fact, they have accounted for almost two-thirds of the world’s GDP growth over the past 15 years. The expansion was mainly driven by China’s rapid ascent, a huge increase in commodity prices, and easy monetary policies in Western central banks. Moreover, countries like India and Brazil have also attracted significant attention due to their expanding economies, young populations, and growing consumer bases.

However, the last decade has seen a slowdown in the growth trajectories of these economies, mainly due to the strong dollar, weak commodity prices, and low corporate earnings growth. Emerging market shares have been de-rated since 2008, trading at a 35% discount relative to their peers. Between 2015 and 2019, the slowing growth in EMEs could be attributed to structural moderation. However, in the years following the pandemic, the situation has worsened significantly, with the MSCI Emerging Market Index underperforming the S&P 500 by 10%. 

MSIC Emerging Markets Index performance against S&P 500 
Source: Factset

The pandemic has deeply changed the growth trajectory of emerging economies, as the need for direct and indirect stimulus policies largely increased their outstanding debt. Weak domestic capital markets and political instability increased borrowing costs during the pandemic, leaving emerging economies with much lower budgets and current account deficits. This has strained their capacity to invest and drive future growth.

The US policy on “higher for longer” interest rates has also been detrimental to emerging markets, negatively affecting investor sentiment. Higher interest rates have dampened capital flows, caused currency depreciation, and reduced equity prices. Furthermore, China’s crisis has further reduced investors’ confidence in emerging markets, with rippling effects on global trade, particularly for economies like India. Being a major trading partner, India’s exports have been heavily affected by China’s reduced demand, particularly in the chemicals and machinery sectors.

Regulatory Frameworks and Investor Confidence

Donald Trump’s tariff threats against China, Mexico, and Canada have rattled global markets. India has remained unaffected for now; however, it needs to closely track and monitor developments as they might represent a huge problem for the economy. On the other hand, while emerging markets are well-positioned to thrive in the demand for green technologies, as they are the main suppliers of raw materials, they also need to develop appropriate regulatory frameworks. 

The risk of weak regulatory frameworks has been particularly evidenced by the Adani scandal, which reflected weaker governance, a lack of legal structures in emerging markets, and the inability to protect investors due to non-existent transparency. The scandal is expected to have disruptive effects on FDI towards the country, aggravating the delicate situation of funds exodus from the country, which started in October, during which foreign investors pulled more than $10 billion out of India. Foreign investors have growing concerns that the market’s bull run has come to an end.

Finally, although India still presents myriad opportunities and potential benefits for investors, the lack of strong corporate governance compounded with low transparency, mismanagement, and a missing robust structure capable of protecting shareholders’ interests represents a crucial threat to the growth of the economy. A stable regulatory and policy regime, transparency in decision-making, and information flow are key drivers of decisions for foreign investors considering emerging economies. 

Despite the Companies Act of 2013, the Securities and Exchange Board of India (SEBI) guidelines, and other regulatory frameworks, the Adani scandal reflects the country’s deficiency in maintaining a safe and sound environment for foreign shareholders, especially considering that it was not the first time Adani had been accused. As a matter of fact, in January 2023, the promoter was accused of stock manipulation and “flagrant fraud”; hence the governing regulatory body has not addressed the existing gaps in regulations. Consequently, the repeated scandals involving the same influential figure will certainly negatively affect investors’ perception of India’s market and their allocation of funds towards the country’s development.

Conclusion

India’s remarkable economic growth and its position as a global powerhouse demonstrate the country’s great potential. However, the Adani scandal has revealed significant weaknesses in regulatory oversight, corporate governance, and investor protection. Serious concerns have been raised about the long-term sustainability of India’s economic momentum. To maintain its appeal as a key destination for FDI and to solidify its role as a leader among emerging markets, India must address these vulnerabilities. Strengthening transparency and enforcing stricter regulations are critical steps toward rebuilding trust with international stakeholders. By tackling these challenges head-on, India can ensure that its economic growth remains robust and maintain its position as a cornerstone of the global economy.

By Alexander Lockhart, Kabir Wali, Nicolò Giuliani, and Valeria Piazzese

SOURCES

• Financial Times
• Fidelity
• ECB
• McKinsey & Co.
• World Bank
• FactSet
• India Times
• JP Morgan
• Reuters 
• IR Magazine
• Bloomberg
• Business-standard
• Businesstoday
• DW News
• Forbes
• Hindenburg Research 
• investindia.gov
• Macrotrends
• Pib.gov
• Statistics Times
• The New York Times
• The Times of India