BJP’s massive Adani hiccup

In a year of continuous elections and growth projections in the budget, how will the BJP handle this perception disaster?

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By Chanakya

The Hindenburg Research report has struck a massive blow to all companies owned by Gautam Adani, especially his flagship Adani Enterprises. This may have spin-off effects on other business houses, not only because two major finance entities, LIC and SBI have been severely affected by this collapse, but also because the world might now see Indian investments as tricky.

Adani stocks are rebounding to an extent, after days of hard hammering and after some of those companies announced their results. Also, Adani has said that it prepay loans amounting to $ 1.1 billion, but the source of these funds have not been disclosed. However, this barely shoves under the carpet the massive bad reputation that the group has earned and it will take a lot of time for it to come back to terms with investors, if at all.

India, as one of the major economies of the world today, is pretty much plugged into the world financial system. Whatever happens around the world has an effect on Indian financial markets. Similarly whatever happens in India will now be deeply scrutinised by world financial markets. There is too much at stake.

Indian companies take more loans from international banks than from Indian banks, because the rate of interest available abroad is way lower than what is available inside the country. This is a given. Even Adani companies had loans. However, to service those loans – which is to be able to pay back those loans with interest – these companies not only have to be in good health, they should also project a good perception to international financiers. This is particularly important in those days when the rupee is falling fast against the dollar.

The Adani companies, despite some of them being solid companies in themselves, have lost this crucial perceptive advantage.

Other major companies, functioning across different geographies, as also exporters and importers who depend on letters of credit, also depend on this perception. To put in bluntly, your son may be a class topper with a good job and a great person at heart, but if there is an allegation of theft against you, your son will find it difficult to get married in an arranged marriage market. Perception is very powerful.

The only way this problem can be dissipated is for the government to come out and speak, try to alleviate fears of the people and especially of foreign markets. Silence will definitely not help. And the recent comment by our Finance Minister, Nirmala Sitharaman, who said the BJP was not in cahoots with Adani, does not help. People are not fools, whatever Mrs Sitharaman may think.

The arguments and cross arguments in Parliament have done nothing to alleviate market fears. If anything, these have only stoked suspicion.

Rahul Gandhi shows pictures of Prime Minister Narendra Modi with Gautam Adani in Lok Sabha

Let us understand one thing: the markets are in reactive mode. The markets are not, in any way, correcting any wrongdoing on the part of the Adanis. It is for the SEBI to come out and take action. And since in these times the SEBI and almost every other so-called independent organisation has lost its spine, it will be left to the government, again, to provide one for the market watchdog to even bark, forget bare its teeth and growl.

In the long run, what happens? Two very important events are in the picture. The government’s somewhat decent budget has to be within the propaganda of the government now, because the second important thing, elections, are on the way, in February itself. If the all godi media outlets are busy talking about Adani, how will the bigger picture be painted and presented to the voting public? There has been a recent directive from the BJP headquarters to its leaders to move away from discussing Adani and concentrate on propagating, across all pliant media, the supposed goodness of the budget. Remember, this is the last full budget of this government before the 2024 general elections, hence the government has to milk all the goodness contained in the budget.

It will only be with the help of the budget and other such catalysts that the BJP will be able to start its campaign in earnest. Within this critical moment Gautam Adani has become a sore thumb of discontent, instead of helping the government with the much needed funds for the elections. This is a distraction of mammoth proportions, and the government simply does not want it.

Over and above, this is a super election year, running into next year’s general elections. P[erception, again, will be key for the BJP in maintaining momentum. The Adani blip has to be reduced to that, just a blip. It is easier said than done, though. Nine elections this year will each be crucial. Each will be fought with not just a rejuvenated Congress but in some cases with deeply entrenched regional parties.

For this, the BJP will need more than enough funds to move across the plains and the hills. How will such funds be available when the main fundraiser, Gautam Adani, is somewhat landlocked at the moment? There are The Ambanis and other supporters of the BJP for sure, but no other businessman of this country can afford to be as brazen as Adani was. Adani was basically for the government and of the government. For all practical purposes, it WAS the government. Those are attributes difficult to come by in any other business house worth its salt.

The BJP seems to be distancing itself from Adani, but that, again, is easier said than done. The association is long and has withstood  the test of time. Plus, a lot of government projects have already been handed over to Adani, like the Mumbai airport, including its security. These are sticky pitches that the government needs to exit,m and exit fast, before the election pitches kick in.

Conversely, Adani could prove to be a major weak link in the entire BJP election machinery, now that the opposition has decided to use this to the hilt. A counter-narrative has to be prepared and has to be displayed and described in detail. Shouting back at Congress and other parties’ allegations in Parliament may not be enough. There has to be action on the ground and the people need to see it to believe it.

Adani, therefore, has presented the ruling dispensation at the centre with a rather steep task. One has to wait and see how the NDA handles this. There were too many eggs in one (Adani) basket, and this was the BJP’s major mistake. This time out, the BJP has to be careful not to risk all for one man.