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



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4.5: Chapter summary


Similar to other developing countries, India transitioned from a closed economy with an ISI model of development to an open economy aligned with global markets. Although a pro-business direction occurred in the 1980s (Rodrik and Subramanian, 2005; Kohli, 2004, 2012), official economic liberalisation occurred in 1991. India’s liberalisation has been described as ‘gradualism’ whereby sectors were gradually opened to FDI and ceiling caps to investment slowly raised (Singh, 2005; Mazumdar, 2011; Shah and Patnaik, 2013). However, by the mid-2000s, most sectors were open to FDI and the government actively sought foreign investment and incorporated it into its development endeavours (Rao and Dhar, 2011b). In many ways, India is seen a ‘sensation’ of globalisation due to its economic growth and increase in per capita national income (Ghosh, 2011; Mazumdar, 2011; Kohli, 2012). Economic liberalisation and the increase of FDI have transformed certain sectors of the Indian economy into very high growth sectors (Binswanger-Mkhize, 2013). Today India is known as a top destination for IT, computer software and telecommunications foreign investment.

India’s current growth trajectory is based on its service sector and capacity of its domestic markets (Mazumdar, 2011; Rao and Dhar, 2011b). India has essentially transitioned from an agricultural based economy to a service sector dominated one while the structural transition of employment has been very slow to change with the majority of the population dependent upon an unproductive agricultural sector (Krueger, 2007; Mazumdar and Sarkar, 2008; Rodrik, 2011; Ghosh, 2011). India, unfortunately, has achieved high income growth without the corresponding employment opportunities in productive and formal working sectors for its large workforce (Ghosh, 2011). Thus, there are serious concerns for India’s economic sustainability (Krueger, 2007; Nachane, 2011; Rodrik, 2011).

There are also concerns for the social sustainability of its current development trajectory (Nachane, 2011; Kohli, 2012; Dreze and Sen, 2013). Despite the high economic growth that India has achieved, there is still immense and persistent poverty and inequality between different castes, genders, regions and between urban and rural areas (Dreze and Sen, 1995, 2013; Nachane, 2011; Van Klaveren, 2010). India’s social policies have been woefully inadequate in decreasing inequalities (Mazumdar and Sarkar, 2008; Dreze and Sen, 1995, 2013; Nachane, 2011). What’s worse, India’s minimal social protection coverage may serve to increase the risk of harms that come with open global markets (OECD, 2002, 2004; Ghosh, 2004; Mkandawire, 2004).

The chapter to follow will explore the research questions and the methods used to conduct the empirical research.


Chapter Five: Methodology

5.1: Introduction


This chapter focuses on the methodology adopted for this exploration of the social and economic impacts to India and its citizens from inward FDI. The method employed is a qualitative case study which utilises both in-depth face to face interviews and documentary analysis. This research stems from an interpretive epistemology as it is principally concerned with stakeholders’ perceptions of the impact of FDI on Indian citizens and, in particular, the perceived harms and advantages brought by TNCs investing in India.

This chapter will firstly present the research questions and explore how they address gaps in the existing literature. This chapter will proceed to explore the methodological approach including the theoretical foundations and a description of the case study research approach. Following this, the chapter will recount the process of conducting the data collection and will examine issues concerning the research design and research process including participant selection, interview methods, and data analysis. The positionality of the researcher including how gender, ethnicity, nationality and other identifying characteristics impacted the research process will be highlighted next. Subsequent to this, issues pertaining to ethical issues will be explored and the final section will explore obstacles encountered in the field. Here I will explore the implications of these barriers to the research design and findings.


5.2: The research questions


It is against the backdrop of the above literature review chapters and the existing gaps within them that my research questions emerge. There are five main research questions examined in this thesis:

  1. How is India selling itself to investors and what are possible implications for social welfare that are likely to flow from the Indian government’s investment strategy?

  2. Why do elite policy stakeholders feel India has attracted the type of FDI it has and what do they believe are the main social and development consequences that have resulted from the FDI India is attracting?

  3. Do elite policy stakeholders believe the Indian government is balancing the needs of business and citizens in its development strategy or is one perceived to be prioritised over the other?

  4. Do elite policy stakeholders perceive the government’s FDI policies to be effective in minimising the negative effects of TNCs while maximising benefit to its citizens and economy?

  5. What spillovers, both helpful and harmful, do elite policy stakeholders feel TNCs are bringing to the citizens, workers and local economies?

The first main research question is based on explorations in the literature review (section 3.7) which argue that states, both developed and developing, compete with one another for FDI and will construct investment strategies to capture FDI (Stopford and Strange, 1991; Thomas, 2011; Farnsworth, 2010). Countries will have resources that the government can promote to investors as comparative advantages (Thomas, 2011). In some cases these can consist of natural resources or an abundant and cheap workforce, while in other cases constructed policies such as special economic zones or tax benefits for foreign investment are offered to entice investment. It was argued in Chapter Three (section 3.7) that some strategies are more tailored to a country’s development needs and highly successful strategies will be dynamic and able to evolve, and target different types of investment as development needs change (Chang, 2003). The literature review discussed how consequences associated with TNC investment are often contingent upon the type of investment (section 3.5) (although all types of investment have the potential to cause deleterious effects) and the policies implemented which can work to minimise negative consequences and maximise potential benefit. Thus, investment strategies and the policies implemented are of critical importance in promoting development and protecting citizens from harm.

The first research question will explore India’s investment strategies by looking at investment bureaux. By doing so we can gauge the types of investment the government is inviting and on what grounds. Chapter Four made clear that India is attracting service sector and market seeking investment. By looking at what the government is offering investors, we can gauge the possible implications for social welfare that may result from the investment. This research question will also be explored by conducting documentary analysis on two specific investment policies: FDI in Multi-Brand Retail Trading (Press Note No. 5, 2012 Series) and the National Manufacturing Policy, 2011 (Press Note No. 2, 2011 Series). Here we can investigate the social protections that are in place or may be needed to protect citizens from potential corporate harms. By investigating both investment bureaux and specific policies, we can appraise the possible social implications that may arise from the government’s investment strategies.

The second research question builds on the first and will further explore the social consequences of attracted investment by using data from interviews with elite policy stakeholders. Whereas the first question uses documentary analysis to reveal government strategy to entice investment, this question seeks to clarify why respondents believe India is attracting the types of investment it is as well as the main implications that respondents believe are occurring as a result. This will be a helpful extension of the first research question in that government strategy might not always be successful in its aims and there may be unintended consequences of attracting certain types of investment that documentary analysis might not uncover. Chapter Four reviewed evidence which suggested that India intended to become a manufacturing exporting country for global markets upon economic liberalisation in 1991 (Rao and Dhar, 2011b) yet it has been largely unsuccessful in these aims. We also know that India has attracted mostly service sector and market seeking investment but the explanation for this and exploration of the main social and developmental consequences as a result is necessary not only to determine the social impact of FDI but also to uncover wider policy implications. As explained in the Introduction (see section 1.2) FDI literature often discusses spillovers that have or have not taken place but does not explore the social consequences of FDI. This is because several independent and external variables are working in combination with investment patterns to produce social consequences. Thus, exploring these issues with elite policy stakeholders can help to elucidate and unpack complicated issues.

The third research question arises from discussions in Chapter Three (3.6) which argue that governments need to balance provisions to suit the needs of both its citizens and business. As discussed, although social welfare policies are helpful to business, economic growth and the competitiveness of a state’s economy (Gough, 2000; Farnsworth, 2012; Hecock and Jepsen, 2013) mainstream development agendas continue to prioritise the needs of business and economic growth over social welfare (Marques and Utting, 2010; Farnsworth, 2010, 2012). Furthermore, social welfare is often conceptualised as an accessory or ‘add on’ to economic growth (Mkandawire, 2004). This research question will gauge respondents’ perceptions of the development priorities of the Indian government. Development plans are expressed in India’s Five Year Plans; however, not all of the initiatives may be implemented to the same extent. Interview data with policy experts can help to distinguish between what is stated by the government as a development priority and what, in their opinion, is actually executed. The review of literature has indicated that India’s social welfare programs and policies have been inadequate in alleviating poverty and inequalities. It is therefore important to establish whether this is tied to the government’s development priorities or whether there are other problematic factors at fault.

The fourth research question will investigate respondents’ perceptions of the government’s ability to construct and implement FDI policies. As argued in Chapter Three (3.7) how governments frame FDI policies can greatly affect the impact of FDI to the economy and its citizens. As discussed, countries such as East Asia implemented selective FDI policies tailored to their development needs. These policies directed the terms and conditions of investment and TNC behaviour to better ensure the capture of social and economic benefit (Chang, 2003; Yeung, 2013). We also know from the literature review that policies are critical for the mitigation of the negative impact that can result from FDI (sections 2.4, 3.3 and 3.7) (OECD, 2002, 2008). This question will build on the documentary analysis conducted in the first research question. Interviews with elite policy stakeholders can provide a more generalised overview of the government’s ability to construct and implement effective policies. The documentary analysis will look at specific policies and the protections that are or are not afforded but talking with policy experts will provide insight not only into the construction of FDI policies but also the implementation of policies. A policy can be very extensive in affording protection on paper but if it is not implemented properly at local levels, then we can expect negative consequences. What is missing from the existing literature is an overview of the policy process in India. There are examinations of individual policies and their impact, a bottom up approach of analysis but not a top down approach. This question will help to gauge the general trends, both effective and ineffective, in the FDI policy making process.

The fifth and final research question will examine the specific spillovers that elite policy stakeholders feel FDI has brought to India. Here both helpful and harmful spillovers are examined. A harmful spillover in this thesis can include harms, costs and crimes that have resulted from TNC investment. Here, interviews with elite policy stakeholders can help to obtain an overview picture of the impact, both positive and negative, brought through FDI. Spillover research tends to be carried out from a narrow research scope (Moran, 2015; Lipsey and Sjoholm, 2013; Nunnenkamp and Andres, 2014; Alfaro et al, 2013). Here, the research net is cast wide to get an overall picture of what respondents feel India has gained and lost from FDI inflow. By gaining a broad perspective initially, future research can then hone in on specific findings from this study. The research questions are situated so that they can help to give a comprehensive picture of the damage and advantages that have occurred with insight into why and how such consequences have occurred. The social welfare implications of the above will be assessed and explored throughout the empirical chapters.




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