The Economic and Social Impacts to India and Its Citizens from Inward Foreign Direct Investment


The Economic and Social Impacts to India and Its Citizens from Inward Foreign Direct Investment



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The Economic and Social Impacts to India and Its Citizens from Inward Foreign Direct Investment


Katherine Running

A thesis submitted for the degree of



Doctor of Philosophy (PhD)

Department of Sociological Studies

University of Sheffield

September, 2015



Dedicated in loving memory to my mother and best friend, Patricia Ann Running

January 28, 1947 – January 15, 2013


Acknowledgements


First and foremost, I would like to thank my dear friend Martin Ford. My gratitude for all that you have done for me over the years is limitless. Without your unfaltering support, this thesis would not have been possible.

I owe many thanks to my loving and supportive family. I would like to thank my brother, sister, and father for your love and encouragement throughout these last four years, which have proven to me that the bond of family is the strongest of all.

Thank you to Kevin Farnsworth and Zoe Irving for all your help and inspiration, not to mention hard work in reading the many drafts of this thesis. You both have been wonderful supervisors and challenged me to produce the best work that I can. I admire you both greatly.

I owe a very special thank-you to Charles Ebel for your support and encouragement in the final stages of this thesis. Your kindness is truly remarkable.

Finally, I could have not gotten through the highs and lows of the last four years without my friends and fellow PhD students at the University of Sheffield. I am indebted to Natalija Jarosenko, Melanie Lovatt, Alex Sherlock and Ronnie Cano for all the laughter and good times. The year 2013 was the most difficult of my life, and you, my friends, helped see me through and were pillars of support.

Abstract


Developing countries greatly need to boost economic investment in order to spur growth, boost jobs, transfer advanced technologies, reduce poverty and increase their capacity to expand social welfare programmes. Towards this end, most have constructed and coordinated vigorous policies to attract new foreign direct investment (FDI) and India is no exception to this (OECD, 2002; Stiglitz, 2006; Rao and Dhar, 2011b). Transnational corporations (TNCs), the source of most FDI, are powerful actors in the global economy and they, in turn, try to get the best possible deals from governments who are desperate to host them. In such a charged economic and political environment, there is no guarantee that FDI will implant these desired assets (Nunnenkamp, 2002; OECD, 2002; 2008; Lipsey, 2003). Indeed, there is evidence to suggest that TNCs bring a great many risks, as well as benefits, including labour exploitation, corrupt practices, including bribery, and the ability to unduly influence policy outcomes and monopolise domestic markets (Madeley, 1999; Richter, 2001; Farnsworth, 2004). Thus, TNCs carry great risks, for the citizens, economies and local communities of host countries enticing FDI in the hopes of securing seriously needed development assistance.

This thesis analyses the potential benefits and disadvantages of FDI to India and its citizens as reported by elite policy stakeholders. The research is based on qualitative interviews in New Delhi, India with 40 participants from NGOs, IGOs, and policy and research organisations that target economic and social development issues. In addition, it utilises documentary and policy analysis methods in order to investigate India’s investment and development strategy through the Indian investment bureaux.

Through this analysis, the thesis reveals that FDI to India brings both benefits and disadvantages to its citizens and economy. India’s current growth model is catering to the middle class consumer and employment needs and in this regard, FDI has increased opportunities and brought advantages. However, FDI is not bringing much benefit for those in the lower social classes. What’s worse, it is attributed to socioeconomic ills such as widening inequalities, increased social tensions, land displacement and the transport of low levels of global value chains which are rife with poor working conditions and exploitation.


Table of Contents


1

The Economic and Social Impacts to India and Its Citizens from Inward Foreign Direct Investment 2

Acknowledgements 4

Abstract 5

Table of Contents 7

Chapter One: Introduction 1

1.2: Justification for the thesis 3

1.3: Structure of the thesis 7

Chapter Two: Globalisation, foreign direct investment and developing economies 12

2.1: Introduction 12

2.2: Defining Globalisation 16

2.2.1: Economic globalisation 17

2.2.2: Political globalisation 26

2.2.3: The criticisms of globalisation and the impact on nation states, developing economies and the world’s poor 30

2.3: FDI within the global economy 34

2.3.1: Defining FDI 35

2.3.2: Types, benefits and risks of FDI 43

2.4: Risks and benefits of FDI: Hypothetical postulations and empirical evidence 47

2.4.1: FDI and economic growth and poverty reduction 47

2.4.2: FDI and the domestic industry: 49

2.4.3: FDI and technology transfer 51

2.4.4: FDI and employment 53

2.5: Why is FDI so high on the development agenda? 56

2.6: Chapter summary 61

Chapter Three: The business-social policy nexus in the context of development 64

3.1: Introduction 64

3.2: Business power and influence on social policy construction 67

3.2.1: Theorizing business power 68

3.2.2: The variability of business power 71

3.3: Deleterious corporate behaviour: Harm, cost, crime and risk 76

3.3.1: Corporate harm 77

3.3.2: The costs of corporate harm 81

3.3.3: Corporate crime 82

3.3.4: The risks of harmful corporate action 83

3.3.5: Theories of corporate crime: Organisational culture, strain and opportunity, rational choice and state-corporate crime 83

3.4: Corporate social responsibility 91

3.5: Types of TNCs and the implications for social policy within developing countries 94

3.6: Corporate and social welfare agendas in a development context: The struggle to provide the right mix 98

3.6.1: The state-market nexus: The role for social policies within economic development 100

3.6.2: The rise of neoliberalism and the severance of social welfare from theories of economic growth 105

3.7: Investment strategies and the state’s capacity to mitigate for harm and extract benefit 110

3.8: Chapter summary 114

Chapter Four: Social and economic development in India 117

4.1: Introduction 117

4.2: Development in India: A brief history 119

4.2.1: Economic development within colonial rule and the ISI years 121

4.2.2: Indian social policy within the development process 123

4.2.3: Economic liberalisation in India 128

4.3: The Indian development experience post economic liberalisation: Economic and social welfare performance 131

4.3.1: Indian growth model following economic liberalisation 133

4.3.2: FDI to India 136

4.3.3: Inequality and poverty in India 142

4.4: The global financial crisis and the impact on development and India 148

4.4.1: The 2008 financial crisis and the impact on developing countries and development thinking 148

4.4.2: The global financial crisis and the impact on India 154

4.5: Chapter summary 159

Chapter Five: Methodology 162

5.1: Introduction 162

5.2: The research questions 163

5.3: Methodological approach 168

5.4: The research process: Sampling, interviewing and document analysis 172

5.4.1: Getting started: Gathering the sample of participants and making contact 172

5.4.2: Interviewing, transcription and coding 180

5.4.3: Multimethod approach: Utilising documents and secondary interviews 184

5.5: Positionality 187

5.6: Ethics 193

5.7: Barriers in the field 193

5.8: Chapter summary 197

Chapter Six: Investment strategies and the social welfare implications of FDI to India 198

6.1 Introduction 198

6.2: Investment strategies and investment bureaux: The need to attract investment 199

6.3: Two policy case studies: FDI in Multi-Brand Retail Trading and the National Manufacturing Policy 206

6.3.1: FDI in Multi-Brand Retail Trading (Press Note 5, 2012 Series) 207

6.3.2: National Manufacturing Policy (Press Note 2, 2011 Series) 216

6.4: Chapter summary 227

Chapter Seven: Attracting the ‘right kind of investment’ and the social and developmental consequences of the FDI to India 233

7.1: Introduction 233

7.2: Types of FDI investing in India and the resulting social consequences 234

7.3: Major constraints to manufacturing FDI 245

7.3.1: Demand for manufacturing products 245

7.3.2: Infrastructure and power supply 246

7.3.3: Labour regulations 248

7.3.4: Labour skills 253

7.4: Unwelcome types of FDI 254

7.5 Chapter summary 261

Chapter Eight: Perceptions of the Indian government’s ability to balance the needs of its citizens and TNCs 266

8.1: Introduction 266

8.2: The Indian government and business relationship 267

8.3: Perceptions of the government’s development strategy and the role of social welfare within the strategy 272

8.4: Perceptions of FDI policies 280

8.5: Chapter summary 289

Chapter Nine: FDI and its implications for citizens, workers and local economies 292

9.1: Introduction 292

9.2: The impact of FDI on the economy 293

9.3: Impact of FDI on domestic industry 298

9.4: Impact of FDI on labour conditions and employment 306

9.5: Impact of FDI on labour exploitation 310

9.6: Impact of FDI on land displacement 322

9.7: Chapter summary 327

Chapter Ten: Conclusions 330

10.1: Introduction 330

10.2: Research findings and the implications 331

10.3: Original contributions to knowledge 345

10.4: Limitations of the research 353

10.5: Policy recommendations 355

References 366

Appendix One: List of documents used in empirical research 426

Appendix Two: List of Interview Participants 427

Appendix Three: Ethics Approval 439

Appendix Four: Information Sheet 440

Appendix Five: Interview Consent Form 441

Appendix Six: Interview Questions and Schedule 442



Chapter One: Introduction 1

1.2: Justification for the thesis 4

1.3: Structure of the thesis 8

Chapter Two: Globalisation, foreign direct investment and developing economies 13

2.1: Introduction 13

2.2: Defining Globalisation 18

2.2.1: Economic globalisation 18

2.2.2: Political globalisation 28

2.2.3: The criticisms of globalisation and the impact on nation states, developing economies and the world’s poor 33

2.3: FDI within the global economy 38

2.3.1: Defining FDI 38

2.3.2: Types, benefits and risks of FDI 47

2.4: Risks and benefits of FDI: Hypothetical postulations and empirical evidence 51

2.4.1: FDI and economic growth and poverty reduction 51

2.4.2: FDI and the domestic industry: 53

2.4.3: FDI and technology transfer 55

2.4.4: FDI and employment 57

2.5: Why is FDI so high on the development agenda? 61

2.6: Chapter summary 66

Chapter Three: The business-social policy nexus in the context of development 70

3.1: Introduction 70

3.2: Business power and influence on social policy construction 74

3.2.1: Theorizing business power 74

3.2.2: The variability of business power 78

3.3: Deleterious corporate behaviour: Harm, cost, crime and risk 84

3.3.1: Corporate harm 85

3.3.2: The costs of corporate harm 88

3.3.3: Corporate crime 89

3.3.4: The risks of harmful corporate action 90

3.3.5: Theories of corporate crime: Organisational culture, strain and opportunity, rational choice and state-corporate crime 91

3.4: Corporate social responsibility 99

3.5: Types of TNCs and the implications for social policy within developing countries 102

3.6: Corporate and social welfare agendas in a development context: The struggle to provide the right mix 106

3.6.1: The state-market nexus: The role for social policies within economic development 109

3.6.2: The rise of neoliberalism and the severance of social welfare from theories of economic growth 114

3.7: Investment strategies and the state’s capacity to mitigate for harm and extract benefit 119

3.8: Chapter summary 124

Chapter Four: Social and economic development in India 127

4.1: Introduction 127

4.2: Development in India: A brief history 130

4.2.1: Economic development within colonial rule and the ISI years 131

4.2.2: Indian social policy within the development process 134

4.2.3: Economic liberalisation in India 140

4.3: The Indian development experience post economic liberalisation: Economic and social welfare performance 142

4.3.1: Indian growth model following economic liberalisation 144

4.3.2: FDI to India 148

4.3.3: Inequality and poverty in India 154

4.4: The global financial crisis and the impact on development and India 160

4.4.1: The 2008 financial crisis and the impact on developing countries and development thinking 160

4.4.2: The global financial crisis and the impact on India 167

4.5: Chapter summary 172

Chapter Five: Methodology 175

5.1: Introduction 175

5.2: The research questions 176

5.3: Methodological approach 181

5.4: The research process: Sampling, interviewing and document analysis 185

5.4.1: Getting started: Gathering the sample of participants and making contact 186

5.4.2: Interviewing, transcription and coding 195

5.4.3: Multimethod approach: Utilising documents and secondary interviews 199

5.5: Positionality 203

5.6: Ethics 208

5.7: Barriers in the field 209

5.8: Chapter summary 213

Chapter Six: Investment strategies and the social welfare implications of FDI to India 215

6.1 Introduction 215

6.2: Investment strategies and investment bureaux: The need to attract investment 216

6.3: Two policy case studies: FDI in Multi-Brand Retail Trading and the National Manufacturing Policy 223

6.3.1: FDI in Multi-Brand Retail Trading (Press Note 5, 2012 Series) 224

6.3.2: National Manufacturing Policy (Press Note 2, 2011 Series) 234

6.4: Chapter summary 246

Chapter Seven: Attracting the ‘right kind of investment’ and the social and developmental consequences of the FDI to India 253

7.1: Introduction 253

7.2: Types of FDI investing in India and the resulting social consequences 254

7.3: Major constraints to manufacturing FDI 266

7.3.1: Demand for manufacturing products 266

7.3.2: Infrastructure and power supply 267

7.3.3: Labour regulations 269

7.3.4: Labour skills 274

7.4: Unwelcome types of FDI 275

7.5 Chapter summary 284

Chapter Eight: Perceptions of the Indian government’s ability to balance the needs of its citizens and TNCs 289

8.1: Introduction 289

8.2: The Indian government and business relationship 291

8.3: Perceptions of the government’s development strategy and the role of social welfare within the strategy 296

8.4: Perceptions of FDI policies 305

8.5: Chapter summary 315

Chapter Nine: FDI and its implications for citizens, workers and local economies 318

9.1: Introduction 318

9.2: The impact of FDI on the economy 319

9.3: Impact of FDI on domestic industry 325

9.4: Impact of FDI on labour conditions and employment 334

9.5: Impact of FDI on labour exploitation 339

9.6: Impact of FDI on land displacement 352

9.7: Chapter summary 357

Chapter Ten: Conclusions 360

10.1: Introduction 360

10.2: Research findings and the implications 361

10.3: Original contributions to knowledge 376

10.4: Limitations of the research 385

10.5: Policy recommendations 387

References 399

Appendix One: List of documents used in empirical research 464

Appendix Two: List of Interview Participants 465

Appendix Three: Ethics Approval 477

Appendix Four: Information Sheet 478

Appendix Five: Interview Consent Form 479

Appendix Six: Interview Questions and Schedule 480



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