The rapid fall of Indian billionaire Gautam Adani has sparked renewed scrutiny of the tycoon’s close ties to Indian Prime Minister Narendra Modi.

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The fallout from the Adani Group turmoil could have political implications for India, said a chief Asia Pacific economist at Natixis.

While corporate governance issues affect countries globally, what’s different about the Adani case for India is that it’s “very political,” Alicia Garcia Herrero told CNBC’s “Squawk Box Asia” on Tuesday.

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This is especially true now, she noted, then the country’s highest court has opened an investigation into the Adani Groups allegations.

Indian billionaire founder Gautam Adani has been under scrutiny following allegations in January by the US card-selling company Hindenburg Research which accused the Adani Group of companies of fraud.

Adani Group has denied the crimebut that didn’t stop the market loss being wiped out about 140 billion dollars in market value from the seven largest listed companies under the conglomerate. Adani, India’s premier industrialist, has since then lost his crown as Asia’s richest man.

Investor concerns about Adani’s governance problems are likely to be short-lived, Herrero said.

But the long-term political fallout for India remains to be seen, the economist said. Given the close ties between Adani and the Prime Minister Narendra Modiit remains unclear whether the turmoil could hurt the Indian leader politically, Herrero said.

The picture can be further complicated by India’s G-20 Chairmanship this year.

“I would argue that if things have to be pushed further and there (are) closer links, in terms of how this plays out with Modi – it could be very difficult, given the G-20 and of course in the run-up to the elections,” Herrero said .

“That’s why we have to watch out because it goes beyond the group in a way” in terms of “what the implications for India could eventually be,” she noted.

Under probe

Her comments follow India’s Supreme Court last week formed a panel to investigate if there were regulatory deficiencies related to allegations against Adani Groupafter the Hindenburg report.

India’s top court also ordered the country’s market regulator, the Securities and Exchange Board of India, to investigate “whether there was any manipulation of stock prices in violation of existing laws,” the court order said. SEBI was ordered to complete the investigation in two months and submit a status report.

Adani Group Saga: India's market is put to the test

Adani’s fall has been triggered renewed scrutiny of his close ties with Modi. Both men come from India’s western state of Gujarat. Adani was an early supporter of Modi’s political ambitions and defended Indian Leader’s Growth Vision for the country.

Last month, billionaire investor George Soros said that Adani chaos will greatly weaken Modi’s grip on power and lead to a “democratic revival” in the country.

“Modi and business tycoon Adani are close allies; their destinies are intertwined. Adani Enterprises tried to raise money in the stock market, but he failed.” Soros said at the 2023 Munich Security Conference.

“Adani is accused of stock manipulation and its stock collapsed like a house of cards. Modi is silent on the subject, but he will have to answer questions from foreign investors and in Parliament.”

Adani Group did not respond to CNBC’s request for comment.

Investor interest

GQG Partners CIO Rajiv Jain on his Adani Group investment paper

Rajiv Jain, co-founder and CIO of GQG Partners, which had $92 billion under management at the end of January, told CNBC that his firm was betting on the Adani group, despite the ongoing turmoil.

“Controversy is part of how you get better returns,” Jain told CNBC in an exclusive interview.

Asked about India’s Supreme Court ordering a probe into Adani’s operations, Jain said the regulatory risk was “low”.

“Business regulation tends to be a risk … nothing is a zero probability, but I think it’s a low enough probability for us to invest.”

— CNBC’s Seema Mody contributed to this report