Billionaires’ ascent helps India grow and vice versa

MUNDRA, India – On a recent wind-whipped morning, a steel-hulled behemoth arrived at a desolate stretch of India’s western coast groaning with enough coal to power a city of 1 million people for more than two weeks.  

The ship, the Vanshi, was carrying coal from Indonesia, a two-week trip across the Indian Ocean. India has its own abundant reserves of coal, which raises a question: Why did India need to go so far to get something it already had?  

For Gautam Adani, the power mogul, the answer was simple: The easiest and most profitable way to meet India’s rising demand for electricity is to avoid the hassles, divisive political confrontations and practical inefficiencies of India. In the spirit of the work-around ethos typical of India’s private sector, Adani is working around the subcontinent itself.  

He owns the Indonesian coal mine, the Korean-made cargo ship (named for his niece Vanshi), the Indian power plant and, most important, the private Mundra port. He owns coal mines and a major port in Australia, and has built his own private railroad spur in India. His business plan is to do as much as possible without relying on the creaky infrastructure of the Indian state.  

“He is able to do so well partly because he is very entrepreneurial and has found the right opportunity,” said Eswar Prasad, an economic adviser to India’s finance minister. “But it’s a symptom of a dysfunctional state. He is able to deliver something more effectively than the state.”  

Today, India is increasingly turning to the private sector to deliver the electricity needed to maintain rapid economic growth into the future. India’s economy is growing at more than 8 percent annually, but is badly constrained by an inadequate power supply after years in which the government dominated the power sector and failed to keep up with growing demand.  

The rise of Adani attests to a broader shift, as the private sector is playing a greater role in areas once controlled by the state such as telecommunications, ports, airports, banks and infrastructure. At a global level, this contrasts sharply with China, where huge state-owned enterprises dominate strategic industries and lead the country’s global expansion. Adani recently had to outbid the Chinese for his Australian port.  

Within India, though, the success of private tycoons has created a paradox: India’s moguls are essential to the country’s success and admired for their ability to get results. Yet their staggering wealth is made possible in part by their cosiness with powerful politicians who help arrange environmental clearances, land use rights and other thorny issues. That raises accusations of crony capitalism.  

India in the 21st century is now often compared to the United States during the Gilded Age of the late 19th century, when robber barons dominated the U.S. economy. The country has 55 billionaires whose aggregate wealth of $250 billion is equivalent to almost a sixth of the nation’s annual economic output.  

“No question, there is an oligarchy developing that has an enormous amount of influence,” said Arvind Subramanian, an economic adviser to the government of India. “That is a matter of great concern. But in India, these are also the guys who are performing. In some cases, they may be gaming the system, but they are also performing despite how bad the system is.”  

Adani is now India’s sixth-richest person, with a fortune valued at $10 billion. He was an import-export trader during the 1980s when the government tightly controlled trade and industry through high tariffs and an abstruse licensing regime. During the 1990s, after India embarked on economic reforms, Adani expanded his trading business and befriended influential politicians, including the powerful and controversial chief minister of his home state of Gujarat.  

Adani entered the power business partly because of criticism that traders were just “intermediaries” who did not own anything or contribute to society. He decided to start acquiring things, only to find that India’s new business climate would mean shopping around the world.  

 

GOING VERTICAL  

It was a singularly Indian dilemma: tigers versus electricity.  

In 2009, India’s power and coal ministries granted Adani initial approval to build a power plant in the state of Maharashtra, a deal that included the right to develop a coal mine. But the coal concession was in a forest near a wildlife reserve for endangered Indian tigers. Protests mounted until India’s Ministry of Environment and Forests blocked the mine project.  

The dispute underscored how often important national priorities – environmentalism versus expanding electricity – collide in India. India has the fifth-largest coal reserves in the world and depends on coal-fired power stations for electricity, yet much of India’s coal lies beneath forests in areas populated by tribal groups. Rare is the project without protests, controversy or violence.  

Adani’s cancelled mining lease was only part of his problem. He had plans to become India’s biggest private power company by 2020, yet he could not get domestic coal. Two other applications for domestic mining rights were snagged in red tape after India’s environment minister declared broad areas of the country to be “no-go” regions for mining.  

Adani’s advantage was Mundra. He had spent a decade assembling tracts of land into a special economic zone and had transformed Mundra into India’s biggest private port. Now the port would become his India gateway for a global expansion.  

He acquired mining rights in Indonesia. He bought two cargo ships (with two more on order) and began prospecting in Australia, where he bought a mine and, this year, the Abbot Point port. In short order, he became an overseas coal baron even as his India mining applications remained tangled in a ministerial turf war.  

“He learned that it is difficult to get such clearances,” said Devendra Amin, a spokesman for the Adani Group. “The challenges are political, as well as logistical.”  

Indeed, the logistics of transporting coal in India were another problem.  

Indian Railways is a huge government bureaucracy with some of the world’s highest freight charges, even though India’s freight trains travel slowly and carry small loads. Adani found it cheaper, more efficient and sometimes faster to ship coal 6,437 kilometres by sea than 1,609 kilometres by train.  

In the space of a few years, Adani had created a vertically integrated global supply chain reminiscent of when Henry Ford once owned Brazilian rubber plantations to supply his car factories in the United States.  

Analysts credit Adani with a bold vision and a world-class ability to execute projects. But he has also demonstrated talents in another realm: Few of India’s billionaires get rich without playing politics, too.  

 

THE BILLIONAIRES’ CLUB  

Earlier this year, Narendra Modi invited India’s most powerful tycoons to the Vibrant Gujarat Global Summit. The glittering lineup of tycoons was, in essence, a homage to Modi, the state’s chief minister and highest-ranking official.  

At the summit meeting, Mukesh and Anil Ambani, the feuding billionaire brothers who dominate several industries in India, were both in the audience. Ratan Tata, chairman of the sprawling Tata Group, was on hand.  

But the seat beside Modi during the inaugural ceremony was reserved for Adani, who used the occasion to announce an investment of an additional $17.8 billion in Gujarat.  

This nexus between tycoons and powerful politicians courses through the public-private relationship in India and forms the crux of a continuing debate on whether the rise of India’s billionaires is a sign of dynamism or cronyism.  

India’s billionaires control a considerably larger share of the national wealth than do the super-rich in bigger economies like those of Germany, Britain and Japan. Among the India billionaires included on the most recent Forbes rich list, a majority have derived their wealth from land, natural resources or government contracts and licenses, all areas that require support from politicians.  

Adani, 49, represents the new guard among India’s billionaires. A stocky man with a no-nonsense demeanour, he dropped out of college to enter the Mumbai diamond trade but returned home to do business in Gujarat, where he first ran a plastics factory before becoming a trader and industrialist.  

“Who made him so rich?” asked Babu Meghji Shah, an opposition state legislator and a vocal critic of Adani’s. “The Gujarat government had made him rich.”  

Adani dismissed any suggestion of wrongdoing but said that no business leader can afford to alienate a chief minister. “You cannot put up infrastructure or a larger project without the blessing and active support of the state government,” he said. “You have to work along with whoever the chief minister is, from whichever party he is.”  

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