This is the moment of truth for India’s capital market and perhaps its entire growth model.

Gautam Adani, on paper Asia’s richest man until last week, is accused of the biggest scam in corporate history, using extraordinary leverage and a network of offshore shell companies to manipulate the value of his group companies.

Adani, naturally, disputes the charges, but the prosecutor, Nathan Anderson’s short-selling firm Hindenburg Research, has a good enough track record of uncovering corporate fraud (think Nikola (NASDAQ:NKLA) and Lordstown Motors (NASDAQ:RIDE)) to make the world take notice.

And the world did pay attention. More than $100 billion has been wiped off the market value of the billionaire’s flagship holding company Adani Enterprises (NS:ADEL) and its affiliates. The Reserve Bank of India is reportedly probing systemic risk by requiring banks to report their exposure to the group, and parliament shut down amid unrest after the government refused the opposition’s demand for a debate on the case for fear of embarrassing Prime Minister Narendra Modi. Adani made his fortune by borrowing heavily to develop sectors prioritized in Modi’s ambitious growth agenda, particularly energy and transport.

Market volatility was enough to derail Adani Enterprises’ planned $2.4 billion stock offering, which might have allayed some of Hindenburg’s concerns about over-indebtedness had it gone ahead (albeit at a price that Hindenburg would have called criminally manipulative).

The result of that cancellation was that Adani Enterprises shares fell another 25% in Mumbai bourse trading on Thursday, bringing its total losses since Hindenburg’s publication to nearly 60%.

But it is the debt market that will decide what happens next. The bonds have tight maturities and a key element of Hindenburg’s findings was that 5 of the 7 listed Adani companies have a current ratio of less than 1 – meaning they don’t have enough cash and liquid assets to cover debts that will be repaid over the next year.

4 out of 7 companies also have negative free cash flow, which means their position is deteriorating.

A bond default by any of the portfolio companies could have potentially fatal consequences for the debts of the affiliates.

What will now happen to their debts remains to be seen, but stock market action suggests that locals believe the losses will be absorbed by financial groups that have lent heavily to Adani in recent years. Besides Adani companies, the biggest outsiders last week were State Bank of India (NS:SBI), whose stake is valued at $2 billion, and insurance company HDFC Life (NS:HDFL).

On Thursday, Bloomberg reported that asset management firms Credit Suisse (SIX:CSGN) and Citigroup (NYSE:C) have stopped accepting bonds related to Adani’s group as collateral for loans to their clients. According to other reports, Adani itself has been in talks to accelerate payments on shares pledged as collateral as a confidence-building measure.

Unfortunately, much of the rest of Adani’s actions have had the opposite effect. His 413-page response to Hindenburg’s questions contained few answers and a lot of smoke screens.

Tellingly, he sought the support of the Indian financial and political establishment with a not-so-subtle warning about the dangers of lack of unity, calling the Hindenburg report “not just an unsubstantiated attack on a particular company, but a calculated attack on India, the independence, integrity and quality of Indian institutions, India’s growth story and ambitions.”

When companies start “wrapping themselves in the flag” and identifying their own destiny with that of their country, it is almost always a sign of weakness. In fact, this is not so much an attack on India as a vital test for it. She cannot allow her institutions to use prejudice and favoritism to defend what perhaps is not worth defending.

If Adani is right that its cash flows are sound and its prospects even better, the truth will come out, the company’s stocks and bonds will rise, and Hindenburg-along with everyone else who blindly follows her lead without doing their own research-will lose money.

If Adani overreached, the best thing for India’s financial reputation-and its long-term ability to attract capital-would be a quick and transparent restructuring of its debts, even at the cost of some bankers’ and politicians’ careers.

India should heed the lessons of German payments company Wirecard (F:WDIG): its eventual collapse embarrassed financial regulators, stock exchange executives, bankers and the media in Germany, especially as they allowed themselves to succumb to a false narrative of evil foreigners attacking a lucky local success story.

As Hindenburg himself notes, “India is a vibrant democracy and an emerging superpower with an exciting future.”

A transparent and fair resolution of Adani’s problems could go a long way towards creating a capital market in India worthy of that status.