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


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



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

8.1: Introduction


As explored in Chapter Three (3.6.1) the interdependence between the state, it citizens and business yields a reciprocity between social policy, the needs of citizens as well as the needs of business (Gough, 2000; Farnsworth, 2004, 2010, 2012; Huber and Stevens, 2005). As both business and citizens depend on the state, welfare provisions can be seen as a ‘continuum of need satisfaction’ with social and corporate welfare located on the extreme ends (Farnsworth, 2012, p.3). How host governments balance the needs of business and its citizens and where its policy construction is situated along the welfare continuum will have direct implications for the social welfare of its citizens (Gough, 2000; Glasberg and Skidmore 1997; Farnsworth, 2012). Although social welfare policies are helpful to business, economic growth and the competitiveness of the state’s economies (Gough,2000), mainstream development agendas continue to prioritise the needs of business, economic growth over social welfare (Marques and Utting, 2010; Farnsworth, 2010) which is conceptualised as an ‘add on’ to economic development (Mkandawire, 2004) (see section 3.6).

This empirical chapter will explore the third research question:

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

FDI is capable of bringing a range of negative consequences as well as opportunity and benefit. As explored in Chapter Three (see section 3.5) the OECD (2002) stresses the importance of effective national policies in mitigating disadvantages and maximising benefits. This chapter will also examine the fourth research question:

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

In doing so, stakeholder’s perceptions of India’s development policy-making institutions will be explored. The chapter will first examine respondents’ perception of the Indian government-business relationship and the extent to which business influences the policy decision-making process. As part of this analysis, it will gauge where on the welfare continuum India is constructing and implementing its policies. From here Section 8.3 will explore respondents’ perceptions of the government’s development strategy and how or to what extent social protection is incorporated into its strategies for development. This section will analyse how the government is balancing the needs of business and the needs of its citizens or whether it compartmentalises economic growth and social welfare development. Section 8.4 will investigate respondents’ views regarding FDI policies and the government’s ability to construct effective policies to minimise disadvantages and maximise benefits of TNC investment.


8.2: The Indian government and business relationship


As examined in Chapter Three (see section 3.2.1) business has structural and agency power at its disposal as means to influence policies and policy decision making (Thomas, 2011; Bell and Hindmoor, 2013; Fuchs, 2005; 2007; Farnsworth,2004; 2010). How successful business will be in influencing policy-outcome is contingent upon several factors, one of which is the nature of the government and business relationship (Farnsworth, 2004; 2010). Murali (2010) and Kohli (2012) conclude that the Indian business voice has become more unified and vocal since economic liberalisation and business associations such as the Confederation of Indian Industry and Federation of Indian Chambers of Commerce and Industry have become more powerful in their ability to influence policy in India. Murali (2010) argues that since economic liberalisation, there has been a proliferation of activities, consultations, and information sharing events between business and the government in the form of policy briefs, advisory committees, seminars, trade fairs, and brand building exercises. Business associations have also become involved in the government’s international affairs and business leaders are now regular members of the government’s delegation to many world summits. Mazumdar (2008) also concludes that economic liberalisation has not meant the ‘retreat of the state’ in terms of the business and state relationship and has served to set the stage for an even closer relationship between the state and private capital.

RS is the Director of an NGO devoted to the promotion of inclusive civil society, democracy building and social action in India. She appears to concur with Murali (2010), Kohli (2012) and Mazumdar (2008) that the government and state now have a symbiotic relationship with business leaders forming close and informal networks with the state:

And I think the entire last decade which has really been the 3rd phase of reforms in India and has seen the coming together of state and business in India. It is really a new emerging pattern of state business relations. And I think what has happened is that the top 10 to 20 business houses have come to dominate and not only have they come to dominate but it is a network that has now been built with the state and government. So you have informal networks that have formed with the state where you have...if you look at when the Prime Minister goes to Davos or when he goes to US...who are the people going with him? And you will see a Tata and you will see a Godrej, there are a set group of people. So these are also opportunities of networking, influencing policy.

RS goes further to observe that formal networks, as well as the informal ones she described above, between the Indian government and the business community have been created in the forms of committees and boards within government ministries. She argues that these ministerial boards, composed of the top business leaders, have produced a model of business focused development to the exclusion of others’ needs. She explains:

And there are formal networks that have also emerged. There has been work to map these networks. So this is like a coterie of people who sit there and advise the Prime Minister. And within Ministries they are institutionalized now where you have these boards...and there is constant delegation of decision making from Parliament to these boards where decisions are being made. So it is really a conflict of interest but they are there and that is where policies are being made. So what we really have now emerging in India is a very close coming together of State and business. And it is a business led development to the exclusion of everybody else. And if you look at policies, they totally reflect that.

There are three major business associations in India: Federation of Indian Chambers of Commerce and Industry (FICCI), Confederation of Indian Industry (CII), and Associated Chambers of Commerce and Industry of India (ASSOCHAM). These groups collectively represent the views of business operating within India. Organisations such as FICCI and CII have a direct consultative relationship with the government of India and collectively voice their policy preferences. Often the government ministries will consult with business associations prior to the construction of the policy to obtain their perspectives and preferences, as well as provide them with a draft of the bill for comment, and conduct further consultations before final approval. In doing this, these business associations are able to directly influence public policy. BG, a senior representative from one of India’s major business associations explains:

On the one hand, we are advocating to the government saying these are the policies which you should be bringing in or if they are bringing in any new policies, we give our comments on that. We get the private sector to put together their views and give our view to the government.

However, business preferences are variable and sometimes in opposition to one another. Farnsworth (2004; 2010) emphasises that firms require varying policies to support continual profit and growth but that the power balance between competing firms can result in the state prioritising certain business preferences over others. According to RS, it appears the largest and most profitable of Indian businesses have the inroads into policy decisions:

So it is about efficient players. It is about who are the important players and it is not about the small players anymore.

As explained previously (3.2.1), business is effective in influencing policy-making due to its structural and agency power. One form of structural power is executed in the form of ideological hegemony (Farnsworth, 2004; 2010; Fuchs, 2005). This occurs when the vested interests of business is seen as the ‘common interest’ of the state and its citizens (Farnsworth, 2004; 2010). Business associations often present their preferences as the best interest of the host country. They effectively advertise their own investment opportunities to host countries as being in the country’s common interest. In an interview with New Delhi TV (NDTV), Ron Somers, President of the US India Business Council (USIBC) was explaining that he would be meeting with various politicians in India to discuss ways in which US business opportunities can be further accomplished. There are two important points illustrated in the upcoming quote: one, international business associations have direct contact with policy makers and they make their preferences explicitly known and two, preferences are often framed as what is best for the country. Somers describes how further opening the FDI ceilings in the insurance sector is in India’s best interest:

We really believe strongly that opening the insurance sector is very important, at least from 26% to 49%. So when we meet with oppositional leaders today, we are really going to make that point. We think this is important for the country, it goes back to your first question; this is not about US pressure, this is about what is best for India.I think hearing that from the outside business leadership is useful and it is not just our delegation, it’s other delegations from around the world that comment on a regular basis saying, “Here is what we think needs to be done in order to attract more investment from our respective countries.” In the end we need to grow this GDP beyond 4.6%. We are not going to be able to create the jobs needed in India to keep these young people at work unless we really boom the economy… and that is going to take foreign direct investment (NDTV, 2013).

Here Somers explains that international business associations regularly put forth their preferences to national governments. Clearly, the use of the plural pronoun ‘we’ further cements the idea that US business needs is one in the same as India’s development needs.

This section has discussed the nature of the Indian government and business relationship and explored business influence on policy construction. Undoubtedly both domestic and international business associations have clear access to India’s policy-making. With this in mind, the following section will explore perceptions of the Indian government’s development strategy and the extent to which social welfare is incorporated into its growth and development initiatives. This will serve to provide insight into how the government prioritises business and social welfare needs.



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