The more specific one describes it as (v) a growth model that Prime Minister Narendra Modi “honed” first as Gujarat chief minister (2001 to 2014) which “was premised on the state giving a set of corporations concessions on land, on capital, on tax, on environmental and building clearance in exchange for setting up shop”. What India is seeing now is “scaling up of that model”.

All these narrations involve the Adani group, though not limited to it, but none is to commend India but warn against the dangers of this model. Here is what they are telling.

High cost of incubating “national champions”

Economist Nauriel Roubini, who forewarned the impending US housing market collapse in 2006, which led to the 2007-08 Global Recession, recognizes that “in some ways” such concentration of economic power (with private businesses) has served India well, but then goes on to warn: “…the dark side of this system is that these conglomerates have been able to capture policymaking to benefit themselves. This has had two broad, harmful effects: it is stifling innovation and effectively killing early-stage startups and domestic entrants in key industries; and it is changing the government’s Make in India programme into a counterproductive, protectionist scheme.”

He also notes that the fallout of the Adani-Hindenburg episode doesn’t seem to extend beyond the group but it “does have macro implications for India’s institutional robustness and global investors’ perceptions of India”, reminding that: “The Asian financial crisis of the 1990s demonstrated that, over time, the partial capture of economic policy by crony capitalist conglomerates will hurt productivity growth by hampering competition, inhibiting Schumpeterian “creative destruction” and increasing inequality.” His advice: “It is thus in Modi’s long-term interest to ensure that India does not go down this path. The country’s long-term success ultimately depends on whether it can foster and sustain a growth model that is competitive, dynamic, sustainable, inclusive and fair.”

Economist Amartya Lahiri lists four “clear problems” of promoting “national champions”: (a) it creates the potential for markets and regulators to treat them as “too big to fail”, opening the door to “market hysteria, delayed discovery of problems and spillovers of sectoral problems into systemic shocks” (b) market concentration “often be bad for efficiency an productivity at the economy-wide level” (c) “need” to provide “access to additional cash flows” to one engaged in infrastructure development, given the long gestation period and low returns, but risks turning the country into “an industrial oligarchy” and (d) the “optics” of an “uneven playing field” can become “significant deterrent” for foreign investors.

Economist Pranab Bardhan doesn’t use the term “national champions” but flags the “symbiotic relationship” between business and politics at the highest level in India, giving rise to “crony capitalist oligarchy”. He points out that this means “extreme inequality and corporate concentration”, rules and goalposts changed midgame, predatory pricing and waiver of environmental regulations allowed in an economy already saddled with low accounting and regulatory standards. He warns: “India’s crony oligarchy is likely to keep much of the economy trapped in a low-productivity mire for quite some time.

Political scientist Ashutosh Varshney draws parallel with the South Korean “chaebols” (which he considers more appropriate for the “gilded age” phenomenon) who produced global leaders like Samsung, Hyundai and LG. That model worked because they were “heavily international trade-oriented”, competed with world best producers, international competition provided a “disciplinary check” on their businesses, generating “huge efficiencies”. They produced cell phones, computers, electronics, semiconductors and auto, capturing significant global export markets for their country. In contrast, the Adani group is “mostly in non-tradable sectors” and the efficiency gains that come from international trade are “missing”.

A 2013 paper of the London School of Business (“Turning national champions into global brands”) says despite their ubiquity “many national champions have historically, from a financial perspective, performed poorly” and that “for every success, there are multiple failures”. For “national champions” to succeed, it says, there must be other requirements: consistent and predictable policies with openness, accountability, honesty in decision-making and action-taking; short-term state-support, conditional on market performance and fostering competition etc. The last one is particularly important as 2022 World Bank analysis of China’s phenomenal industrial success attributed it to policies ensuring “market “competition”.

It is precisely these kinds of undemocratic protections (from parliamentary debate and scrutiny) and lax regulatory oversights (by the government and the SEBI) which causes further doubts in the “national champions” model.

True, India has serious fiscal constraints, particularly to push infrastructure projects which costs more, takes longer time to complete and produce low returns. The GDP growth is slipping from 9.1% in FY22 to 7% in FY23 and 6.4% in FY24 (BE) and private investment (private GFCF) has fallen drastically from 16.8% of the GDP in FY08 to 10.1% in FY22, despite the corporate tax cut of 2019 and the PLI of 2020. But the “dark side” of this model castes a long shadow calling for extreme caution and mindfulness.

regulatory oversights

National champions: Costs and benefits of India’s new growth model