Grover also expounded the role of the State in managing financial markets, which either exacerbates or reduces the wealth inequality in the country.
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THAT the understanding of financial markets, and questions relating to Hindenburg Research, Adani, and the fluctuations of shares, stocks and trading have political and social relevance was emphasised by Neeraj Grover, Assistant Professor of Law, Azim Premji University, at an event organised by the Alternative Law Forum on Friday.
Grover highlighted that resource allocation and reallocation that widen or close the inequality gap between the rich and the poor are dependent on the State's accountability and how it manages financial markets. "The State's collaboration with the markets either widens or closes the inequality gap," he emphasised.
Drawing a link between the State and financial markets, Grover explained that the role of the State and how it shapes inequality through the use and deployment of markets is important to understand the cause of economic marginalisation in our society, since markets result in inequality.
Elaborating on the basics of the functioning of financial markets, Grover said that the markets refer to platforms where shares are sold and bought. He pointed to the mechanism of a vital institution or actor of financial markets, that is, a corporation.
He further elaborated that a corporation or a company is a big institution that amasses large capital and essentially comprises people who contribute to its financial capital. The capital of a company is contributed by banks, who are creditors, or other smaller lenders, and by shareholders on the promise that they will receive a proportionate amount of profits that the company generates.
Grover stated that a corporation has the potential to accumulate resources. "It enables the mobilisation and collection of financial and human resources under its own identity and has the potential to mobilise wealth," he said. Understanding how corporations function helps answer certain questions— how a huge chunk of wealth is deployed to create more wealth, who is holding the people who are managing the wealth accountable, and what is the role of the State in distributing and redistributing wealth, Grover stated.
According to Grover, corporations enable the separation between ownership and control of wealth. Providing an analysis, Grover said that even if shareholders are the ones who are contributing to this capital, they are not the ones who are controlling the wealth— the wealth is controlled by managers, directors, and such other names.
In Asia, however, companies have this unique trait where people who are managers of the capital have also contributed to the capital, Grover highlighted. These corporations are family-led and in most of these corporations, the family itself contributes to the capital, as well as runs the capital. When they contribute to the capital, they also take contributions from the public at large.
Drawing attention to the corporation of the multinational conglomerate Adani Group, Grover stated that 75 percent of Adani Group's wealth is owned by the Adani family. While the company owns 75 percent of the capital, co-opting the remaining 25 percent to the public, it single-handedly controls 100 percent of the funds on account of it being a family-led business.
Grover further stated that in the last three years, the shares of Adani have surged by 800 percent, which is highly unusual for any enterprise in the financial market. On the consequence of the share price raise for the Adani family, Grover detailed that since the surge is connected with the personal net worth of the Adani family, on account of the family not only contributing money but also acting as managers, the surge in shares of prices has added US $100 billion to the family's net worth.
Grover explained that the report released by investment research firm Hindenburg Research on the Adani Group on January 24 made two allegations. Firsty, it alleged that the demand for Adani's shares was artificially inflated, creating an artificial surge in its prices. Secondly, Hindenburg alleged that Adani's shareholding structures flouted Indian laws by holding more than 75 percent of the company's shares through "shady entities". This concealment of actual ownership is referred to as 'round-tripping'.
Grover highlighted that Hindenburg Research is a self-interested firm that profits from its reports, and had released the Adani report with non-altruistic intentions.
Linking the Hindenburg Research report's findings to the need for accountability and transparency in the Indian financial markets, Grover indicated that the Adani family has a history of persecutions. He added that in 2007, a Securities and Exchange Board of India investigation had also found that the corporation had artificially surged its prices, and banned some of its promoters from the securities market for two years.
Grover explained that the Adani-Hindenburg matter concerns public interest on two broad counts. Firstly, where an enterprise as big as the Adani Group largely intends to benefit one party, it questions the integrity of our financial markets. It raises the concern of transparency of accumulation of wealth in the country, and entrenches inequality by blocking wealth for others. Secondly, in the war between the two self-interested parties— Hindenburg Research and Adani Group— the 25 percent of public funds are at loss. "The losers are not those who control the wealth but those who contribute it," Grover concluded.