Home / Opinion / Views /  L’affaire Adani reminds us of the ironic difficulty of discerning what is real

In a world where the opposite of real is not just unreal or imaginary—it could be fake, artificial or inflated—how well we fare could turn on our ability to spot and account for reality distortion fields, the proliferation of which is an ironic paradox of the Information Age. In daily life, we must confront a ‘money illusion’, a term made famous almost a century ago by Irving Fisher. Being human, we tend to focus on the nominal value of money rather than its real worth. This can distort all that we evaluate in terms of, say, Indian rupees. Figures in the past look smaller than they really were and those in the future loom larger, unless we adjust for inflation, which shrinks what our currency can buy over time. Sharply rising prices can turn old-age savings into a paltry sum by the time we get there, its adequacy doomed by endless cost escalation. It could also dupe us into an illusory sense of progress, as nominal trends look sharper than they would if rupee data were duly deflated to reflect reality. And if the rate of inflation stays unsteady for long periods, it can pivot an economy into a moving maze of distortions. With everyone forced into a grand hall of mirrors, signals sent by economic agents could get warped too wildly to attain the multiple equilibria that market theory says we need for efficient resource allocation.

Given India’s need to stretch scarce means optimally for multiple ends, it’s imperative for us to get as real as we can about money. While price stability is the central bank’s job, the tone must be set by the government. How its annual budget plugs its gap between outgoes and inflows often has a heavy bearing on overall money supply, an excess of which can overwhelm other supplies and stoke prices. To be both responsible and realistic, our 2023-24 budget calculus must assume compressed numbers for an output slowdown amid milder inflation as a base condition. While economic growth may still need some state support, the fiscal deficit must also tighten in consonance with a policy pullback on cash spouted in covid relief after the pandemic’s 2020 outbreak. The global economy got pumped with huge doses of liquidity to ease choked commerce and uplift lives. With the conduits of capital in full gush, the market value of various assets also got inflated. Asset owners got enriched in the process, even as bubbles shone; assets whose returns could not justify their price attracted speculative bets on asset inflation (rather than value creation), given how easily these could be offloaded upon a ‘greater fool’ .

As a global monetary squeeze led by the US Federal Reserve exposes unspotted risks and tilts asset markets back in favour of real value over illusory gains, short-sellers have sought to profit off price slides, with financial set-ups of smoke and mirrors serving as soft targets. Last week, the Adani group was accused of being a “con"—on the eve of its share issue—by Hindenburg Research, which alleged it had orchestrated the inflation of its shares, fudged books in some cases and borrowed beyond safety limits by masking the truth of its business empire. Adani called it a “malicious" attack. Yet, the charges battered not just Adani’s overseas bonds (Hindenburg’s crash target), but the group’s India-listed stocks as well. Its sprawl is so complex that it’ll take a deep forensic probe to check for broken rules. As in finance, alas, so elsewhere: it won’t get any easier to discern what’s real and what’s not as we go along. But we must keep at it.

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