Six takeaways from the Adani-Hindenburg saga and how India reacted to it

A lightly edited version of this article appeared on India Today here.

“Ye market kab khulega reeeeeeeeee…,” tweeted one liberal commenter on a Friday morning, well past 10 AM. Her excitement came through in the extraordinary number of e’s in that sentence. Presumably, she was waiting for shares of Adani group companies to drop. Even though she does not appear to know when markets actually open, nor how to find out. This is just an example of the unreasoned glee in certain sections over the recent fight between Adani group and a US based short seller. Another journalist who has recently lost his job, but not his delusions of grandeur, tweeted to his millions of fans about Adani being caught out by a “global research institution.” 

How could such a confusion have happened? Probably because the US based short seller goes by the name “Hindenburg Research.” In other words, speak now, read later. So what would explain the bizarre emotional reactions all around to a fight between a billionaire and a short-seller? What are the lessons for the general public, the media, the ruling BJP and its supporters, as well as the opposition and its ecosystem? Here are six takeaways from this still developing story. In my defense, I waited at least two weeks.

The Indian financial system is rock solid

If there is any clear upside to the current episode, it must be this. Major international brokerages, ratings agencies, retail investors and everyone else on Dalal Street has spent the last two weeks looking for any systemic risk to Indian banks. Nothing significant was found. The RBI asked each bank to disclose their exposure to Adani group debt. As it turns out, the exposure of public sector banks was just 0.7 percent of their loan book, and for private banks, it was a mere 0.3 percent. For every single one of these banks, the debt exposure was well below the limit fixed by the RBI. And none of these loans had turned into NPAs anyway. After some initial jitters, the concerns about risk to our banks faded away. 

For years, the rumors had been circulated, with the kind of conviction that turns lies into truth. They said that the Modi government had pressured public sector banks to pour their money into the Adani business. Now they thought that the Adani group was about to collapse. And they salivated that SBI would be next. In the initial reactions to the short seller report, the words “bloodbath” and “carnage” appear frequently, along with the more moderate “too big to fail.” They imagined a run on banks, a total collapse of the economy, people losing their savings. And finally a popular uprising that brings down the Modi government, which was their real target all along.

Except it could never have happened. There never was any such risk. Even for LIC, the amount invested in Adani shares was under 1 percent of their total assets under management. And so far, they had returned a profit even on that. And thus, they quietly buried the talking point about SBI and LIC going down. Don’t they look silly now?

Was the Hindenburg report an ‘American conspiracy’ against India?

In a word, no. Because investment banks on Wall Street, hedge funds and short sellers operate at a level of selfishness and greed that can be difficult for an average person to understand.  In fact, it is difficult to imagine a short seller seeing themselves as part of any nation or group. For something to qualify as an ‘American conspiracy,’ the people behind it would have to see themselves as Americans. Do they? 

But was the short seller report used opportunistically to attack India? Absolutely, yes. Major international publications pounced on this report to declare India as unworthy of investment, a den of crony capitalism, and so on. Somebody out there was desperate to hurt India’s reputation. Who could that be? These are the same publications who would not dare ask how Biden’s son got to be on the board of shady gas companies from Ukraine. Of course, the short seller in this case was only too glad to seize upon the  narrative advanced by global liberals against India, with its jibe of “fraud cannot be covered by nationalism.”

Note here that for a short seller, ideas such as “nationalism” and “liberalism” are more like menu items. You choose your favored snack for the day. In this respect, the 2021 instance of what happened to the US based video game seller Gamestop is particularly instructive. A number of firms had taken too many short positions against the stock, betting on it to collapse. But it so happened that some ordinary Americans  got wind of this. They formed an online community of millions and began trading the stock upwards. This caused the short sellers to lose billions, in something known as a “short squeeze.” 

The response from big capital firms and their friends in the American establishment was swift. An op-ed in the Washington Post argued that ordinary Americans sticking it to Wall Street was opening the door to Russian disinformation and “economic terrorism.” Yes, the words “economic terrorism” actually appear, in a piece written by the director of the initiative on Digital Economy at MIT! When facing losses, short sellers, especially those with friends in high places, would happily cover themselves with an American flag, and plead “nationalism.” 

We Indians need to get used to the bruising battles of capitalism

Socialism is a morality play, but the problem is that it doesn’t actually produce anything. In this respect, it was funny to see people trying to use their outdated Nehruvian moral compass to find their way in the bruising battle over the last two weeks. Who is the good guy here? The billionaire or the short seller? We have seen old Bollywood movies. So we know that businessmen are bad. But could a short seller from Wall Street really be the kind of hero that Bachchan saab used to play? Unlikely. For all you know, maybe Hindenburg didn’t even take a short position. They only said they did. So much for those who thought Hindenburg was a “global research institution.” Everything here is morally ambiguous. As new India creates more and more business tycoons, there will be many more such battles. Because the stakes are so high. We will get used to it. Being the world’s fifth largest economy, soon to be the third, comes with an end to our innocence.

In this respect, some sense of history might help. Every great business, from Rockefeller’s Standard Oil to J P Morgan’s Northern Pacific railroad, was accused of monopoly, malpractice or manipulation.  They were dragged into hearings that became spectacles for the American public. The same J P Morgan who personally rescued the entire American economy during the great panic of 1907. The truth always lay somewhere in between. But these tycoons like Rockefeller, Carnegie and Morgan built the great industrial economy which enabled America to win two world wars. As India grows, what matters is whether we have the expressways, the high speed trains, the factories, the airports and deep sea ports. All other considerations are meaningless.

What is the lesson for the opposition and its ecosystem?

Never buy your own propaganda. Over the years, it has become an article of faith in the opposition ecosystem that the Modi years are one big scam, just waiting to be exposed. From the expressways to the toilets, the brand new AIIMS, to our status as the fastest growing major economy, nothing is real. Not even election results. The only reason they appear real is because everyone else is lying about it. And one day it will all come apart. 

Because of this paranoia, they always jump too often. And always too high. Back in 2019, it was the supposed “Rafale Scam.” It had no wings. Now they think they have found a new narrative around Adani group and public money. This one has no legs. Both SBI and LIC are doing perfectly fine. So are public sector banks, and more generally all the banks. Nobody is about to lose their savings. 

This paranoia is reflected in terms such as “undeclared emergency.” It is supposed to be real, precisely because you can’t see it. This Republic Day, one of India’s most respected public intellectuals wrote that the “Indian constitution is standing on a precipice.” Then he had a whole theory about how things feel so normal, when they are actually not. Perhaps like a sky god, dictatorship works in mysterious ways. This paranoia creates a number of jobs too. Make no mistake about that. Why else would so many people get together on the 20th anniversary of the 9/11 attacks to warn the world about the threat of “Hindutva”?

What is the lesson for BJP and its supporters?

The BJP also has a big gap in its defenses. The party has allowed the perception to build that the government is close to big businesses. And even more damagingly, to certain specific business houses. We now know that exposure of PSU banks to Adani group debt was a mere 0.7 percent. But why did the initial panic around SBI and LIC even happen? It shows that the rumors had taken root. If the BJP’s perception managers had done their job well, the questions would not have come up at all. This is a fight between two privately owned businesses. What is the government supposed to say about this?

Ultimately, the opposition may not be able to hurt the BJP on the Adani issue. But the issue for the BJP is that it has allowed the opposition to control too many squares on the chessboard. Time and again, the opposition has shown that it is capable of sowing doubt on a large scale, keeping the government on the defensive. We saw this during the protests against CAA and NRC. The CAA is yet to be notified, and the NRC appears to have been forgotten. The agricultural reform laws had to be taken back. The opposition may not be able to win elections, but it can create panic any time it wants, over anything. This is bad news for the BJP.

India’s economy and politics has now been internationalized

In Britain, Sep 16, 1992 is remembered as Black Wednesday, the day which “broke” the British pound. Most reserve banks around the world think long and hard before a 25 bps interest rate hike, or just 0.25 percent. On Black Wednesday, the rout in the British pound was such that the Bank of England held an emergency meeting and raised the interest rate by 5 percent in a single morning! Because when short sellers attack, they take no prisoners. The economic impact of this crisis was so deep that the ruling Conservative Party crashed in elections and did not recover for the next 13 years. The mastermind behind Black Wednesday was George Soros. He made over a billion dollars that day. 

Three weeks ago, almost nobody in India had ever heard of Hindenburg Research. And now almost everyone has an opinion on it. It came out of nowhere, gave a heart attack to our capital markets, and riled up our domestic politics. Is that not scary? And we don’t even know exactly what Hindenburg did, or if it even did anything at all. Short selling is effectively banned in India. The short seller from overseas must have used some kind of sophisticated financial instrument, perhaps trading in some kind of derivative. We have no idea.  

This was bound to happen one day. The sheer size of the Indian economy will now attract every kind of player. Going ahead, the impact of each policy decision will be in billions of dollars. That means both our economy and our politics will be internationalized. For example, George Soros pledged close to a billion dollars to stop Modi at the World Economic Forum in Davos in 2020. Right now, we have only seen international players get involved in our national level politics. Before this decade is out, we will see the impact at the state, and even the city level.

In other words, it is going to get serious. And quite scary. Meanwhile, if you would like to hear about crony capitalism, I could tell you a story about a distant land, a car company, and a Prime Minister who just couldn’t say no to her son. 

Western countries protect their interests from activism, so should India

A lightly edited version of this article appeared in Firstpost here.

We have all heard of the World Economic Forum. But have you ever wondered why this all important meeting of global elites is held each year at a remote ski resort in the Swiss Alps? Because Davos is the only place in the world that has a parking lot which can hold 350,000 cars.

Well, not exactly. Many of the attendees actually like to fly in on private jets. These then have to be parked closely together, forming a line of hundreds of private jets whose emissions would add up to the same as that of 350,000 cars. As usual, the issue of climate change is high on the Davos agenda. There is Al Gore, the failed US presidential candidate who won a Nobel prize for his documentary on global warming. He likes to fly private. There is usually John Kerry, the US special envoy on climate. He once flew on a private jet to Iceland to receive an award for his contributions to highlighting the problem of climate change. The ‘inconvenient truth’ is that the common people of Mumbai must do better. So suppose there are a few trees in the path of say Mumbai Metro. Sorry, but then you can’t have a metro. Tweet with the hashtag #SaveAareyForest.

It’s not hypocrisy. At any rate, not the ordinary kind. Activism is an industry, albeit with a difference. In a typical industry that generates wealth, someone takes a risk and starts a business that brings in revenue. Some of this revenue they keep for themselves as profit. The rest goes towards growing the business, hiring people, and producing more goods that others want. Not so with the non-profit model. Here you don’t invest anything. All the money that comes in has to be spent on salaries, allowances, and lifestyles of those at the top who didn’t take any risk. So that there is nothing left at the end of the day. And then you can ask others for more money. That is activism.

Activism is rent-seeking behavior

Suppose that you are fighting a war against Russia, a proxy one at the very least. But you also need to buy Russian oil to keep your economy going, to keep your people warm during the winter, and still avoid embarrassment. So you create a distraction. You tell the world that it is actually India which is funding Russia’s war. Even though India is buying a tiny fraction of what you buy. And with a per capita GDP which is a fraction of yours, India can ill afford the higher oil prices. 

This is where the activists come in. India is ruled by an evil regime they say, and it is cozying up to dictators. You have the various indexes at your disposal to control the narrative. One index says that India is now an “electoral autocracy.” Whatever that means, but it sounds bad. Another says that India’s press is less free than say the theocracy of Qatar, and yet another says that India has less academic freedom than Taliban ruled Afghanistan. With so many supposedly independent voices saying the worst possible things about India, who will listen to what the Indian government has to say?

In this respect, India’s situation is particularly dire. Because of our open society, anyone can come in and set up an army of activists inside our borders. We cannot shut them down like China would. Anyone can come in and start pushing a narrative favorable to others. On the other hand, it is extremely difficult for us to fight back with institutions of our own that will examine others. We do not have white privilege. Western institutions also have legacy. This allows them to hand out patronage, starting from simple all expenses paid trips to fellowships and titles from prestigious Western institutions. Like any professional army, their activism has not been slapped together at the last minute. These assets have been cultivated for decades.

If India is seen as a sinister regime, nobody will trust anything that comes out of our country. This includes GDP numbers, public spending, debt, forex reserves and so on. That affects investment. It affects the interest rate at which the Indian government, as well as Indian companies can borrow money. Consider how long it took for the Indian vaccine to get WHO approval. Because it was all too easy for others to activate their assets within India, and to sow fears and doubt everywhere. 

The relentless activism hits the competitiveness of Indian companies, our prospects for growth, scares away investors and cramps our space for diplomatic maneuvering. The other day, the new cruise on the Ganga came under attack by environmentalists, because of what it supposedly does to river dolphins. I cannot say if these concerns are real. I do know that inland waterways are extensively used in the West. And they seem to be doing just fine. India’s $24 billion PLI scheme for manufacturing is already under attack. One group thinks the money would be better spent on “education.” Another group takes an ideological position that this is against free trade. Never mind the fact that the United States is spending $465 billion on subsidies for its own industries! With such obstacles, we are being made to pay rent to lobbies all around the world. 

What about Joshimath then? Yes, it is a terrible tragedy. We must give relief to those affected, and then try our best to make sure nothing like this ever happens again. But we cannot let the activists use the tragedy of Joshimath to stop everything being built in India. The costs of that are far greater in the long run. Remember that Sri Lanka listened to activists and banned all chemical fertilizers. Then, the country ran out of food to eat.

Western countries know how to protect their interests

So what would happen if a group of protesters in a liberal western country, say Canada, were to occupy the streets and shut down a major city? No need to speculate. When truckers began protesting in Ottawa last year, the government assumed emergency powers. They seized fuel from the truckers, leaving them to freeze in the brutal Canadian winter. They shut down the bank accounts of the protesters, making it impossible for them to make payments on their home mortgages, cars, and credit cards. You can protest against Trudeau if you want. But then you would lose your home, your car, and be forced into bankruptcy. There is more. Animal protection agencies of the city of Ottawa threatened to seize the pets of those protesting. There was word that the child welfare folks would be next. The state would take away minor children of the truckers. To protect the children, of course.

What if someone tried to raise money for the truckers on the internet? Not so fast. The American Big Tech companies seized the money and decided to donate it instead to a cause they support! Resistance is futile. In less than a week, the protests fizzled out. Try searching on the internet for anything related to this protest.  The top search results are all “fact-checks,” all designed to vilify the protesting truckers and show the Canadian government in the best possible light. Big government, big media and big tech companies are all on the same side.  What could a bunch of working class protesters have done?

In Britain, they didn’t even wait for actual large scale protests to break out. The British are making amendments to their Public Order Bill, which will give the government special powers to stop protests that restrict highways, railways or any such public infrastructure. Violations would even include walking too slowly with possible intent of blocking a road. And no, you don’t have to actually protest, or in this case, walk too slowly in order to get arrested. The police can act as long as they believe that you are about to do something. 

In Germany last week, the government threw out everyone from an entire village because it was sitting on top of a large coal deposit that they wanted to mine. But do not expect any changes in the democracy index, or press freedom rankings of countries such as Canada, Germany or Britain. These indexes are designed to give moral legitimacy to western governments to keep the rest of the world in check.

The West and the activist class are cooperating but also competing

It is important to understand how this ecosystem works and how it doesn’t. The western governments, the big global media, and the activist class are all nominally independent of each other. Some big media did in fact object to how the Canadian government was treating the truckers. But they made sure it was done softly enough, and that it was too little and too late. The German government did in fact detain Greta Thunberg at the coal protests. It was just enough to make sure they could still get the coal, and the environmental groups could keep raising money. 

Instead of a central command, each member of the cartel lays down its red lines that the others will not cross. Remember what happened recently when an Indian liberal news portal fabricated a story against a big American tech company? In their response, the tech company actually praised the news portal as a whole, and hoped that they had been scammed into believing this particular story. In other words, the tech company itself supplied them with the excuse and offered a way out. The news portal got the hint that they had crossed a red line, and retreated. In less than a month, the story was forgotten. By December, the portal was receiving awards all over again. That way they reinforce each other’s legitimacy, making the ecosystem as a whole more powerful. 

The real fury of the ecosystem is reserved for the outsider. For a country such as India, which is trying to leave behind its old status as a developing country, and take a seat at the global power table. That is when terms such as “fascist” or “electoral autocracy” are rolled out. 

“Rebellious” youth need to remember that India is not a superpower

The year was 1969. The angry young radicals who gathered in Flint, Michigan were disillusioned with absolutely everything. The Vietnam war, the US government, mainstream American society, absolutely everything. They wanted to hit out. And so their leaders held up four finger salutes to cheering crowds. It was a gruesome celebration of the ritual murder of the Tate family by cult leader and musician Charlie Manson, a murder that had shaken America. The four fingers were a reference to the fork that Manson had stuck in Sharon Tate’s belly. She had been eight and a half months pregnant when she was murdered.

The left wing organization that organized this rally was called SDS, or Students for a Democratic Society. In the 1960s and 70s, they riled up campuses all over the United States. They talked of revolution and dismantling the American system. They spat at all symbols of American greatness. They shouted down even the astronauts of Apollo 8 who had circled the moon. The focal point of all this was the prestigious Columbia University in New York. The SDS occupied the university and shut it down. The New York police clashed with hundreds of students, in a televised spectacle for the American public. Raise your hand if this sounds familiar. Eventually, the SDS turned into a terrorist organization known as the Weather Underground, which carried out bombings and assassinations all across the country. 

“You were silent when they came for Kashmir. You were silent when they came for Assam.” Words of a prominent left wing media personality the other day, as she was riling up a crowd of mostly young people.  Young people always want to rebel against what they see as the old ways.  In the last eight years, the frustrated liberal intelligentsia in India has tried to harness this energy against PM Modi. This would be a fully legitimate tactic if the goals were not so depraved, such as “Azaadi” and “Bharat ke tukde.” 

In their desperate hatred, the liberal influencers have ended up legitimizing all manner of anti-national activity. Such as hero-worshiping the “80 year old poet” who accuses India of illegally occupying the Nizam’s territory of Hyderabad. Or the missionary who was working as a front for Naxals in Jharkhand. Or the terrorist supporter who wanted to cut off the North East from India. Listen to his full speech: he is so radicalized that he calls Mahatma Gandhi the biggest fascist of all time. This man is currently in jail not because he is a “dissenter,” but because he is a national security threat. He is no hero.

Young people who might be falling for liberal influencers need to understand something. India is not America. The US could withstand the depravity of the SDS’ four finger salutes, and its terrorist attacks, because it was a superpower. India is not. We have plenty of vulnerabilities. We have very powerful enemies. So when the elites talk of a separate Kashmir, or a separate Assam, hold back the temptation to cheer, just for the sake of appearing “rebellious” or “counter-cultural.” 

The really bad guys are coming for us

Where were you when Jack Straw broke the world? That is the former UK Foreign Secretary, under whom the myth of Weapons of Mass Destruction in Iraq was created. US intelligence said that Iraq had WMDs. British intelligence confirmed it, “independently” of course. The US military industrial complex then gave the go ahead for the invasion of Iraq. The rest is history. 

Now Jack Straw is back. It seems he has a new report for the BBC. This one fixes the blame on PM Modi for the 2002 riots in Gujarat. Do you know what this means? The really bad guys are coming for India. First they branded India’s democratically elected government a “regime.” And now they want regime change. 

India is not a superpower, yet. But it is the fifth largest economy, ready to play in the big leagues. And those in the big leagues do not like to see a new kid on the block. They will do absolutely anything it takes to stop us. And they have their army of activists right inside our borders. This should bother us.