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


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



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


The majority of respondents reported that economic growth is preeminent in the government’s development strategy and the attainment of economic growth is prioritised over social welfare development. As explored in Chapter Three (see section 3.6.3) neoliberal influenced models with primary focus on markets have been called into question due to rising inequality, enduring poverty, and continual global financial recessions (Marques and Utting, 2010; Utting et al, 2012). The call for social policy to be integrated with economic policy has been termed ‘new growth theories’ or ‘endogenous growth models’ (see section 3.6.2) and these models recognise that social policy contains crucial mechanisms for economic development (Mkandawire, 2004; Marques and Utting, 2010). However, IGOs such as the World Bank continue to prioritise economic growth and promote social welfare policies only if they are ensured to create a positive business climate (Farnsworth, 2010; Marques and Utting, 2010). Social policy and social protection is conceptualised as largely separate from economic development, hypothesised as a social expenditure which detracts from economic growth, and viewed as an end result to development (Mkandawire, 2004). This development ethos was reported by several respondents to be unswerving in Indian policy making.

PJ is a Professor of economics at a major university in India. His areas of specialization include labour economics, development economics, the agriculture sector as well as rural development. He emphasized the Indian government’s philosophy that high economic growth should be prioritised above all else and suggested that social protection within Indian policy is developed as an appendage to the overall economic strategy:

None-the less it is still not deviating in any sharp manner with that fundamental philosophy that growth must be privileged and poverty will be taken care of...to the extent that if there are certain distresses that need to be addressed, let’s provide some add-ons. You see, addressing social issues is largely in response to democratic aspirations and the churning of political pressures. And it is, as I said more of an ADD ON approach. But the basic thing is, ‘ok let’s believe in the ability of the market to give us higher growth’ and the problem of poverty can be taken care of. So that is the main economic policy and adding pieces on to help with alleviating poverty.

PJ goes further in stating that the government’s economic strategy is one of ‘trickle-down economics’. Trickle-down economics, as it is commonly known, is an institutional pillar of neoliberal economic thought and stresses that the wealth created from economic growth will trickle down to the lower and marginalized classes (Aghion and Bolton, 1993). Several respondents explained that the Indian government has relied on the theory of ‘trickle down economics’ in its development planning. PJ explains:

There are many problems there because, fundamentally, the current economic strategy fundamentally relies on a view which has been—a discredited view—that is a trickle down approach. If you can manage to grow rapidly at 7, 8, 9% then poverty can be taken care of. We have had debates in economics now for at least half a century on this. And this is not sufficient to lowering poverty or alleviating poverty. There is a view which says that growth can actually be poverty aggravating. So to think of it as a necessary condition itself is wrong.

RS, Director of an NGO devoted to the promotion of inclusive civil society, democracy building and social action in India, concurs that the government’s priority is high GDP. She suggests this type of strategy has relinquished the government’s obligation to redistribute resources or provide widespread welfare programs and in a country with widespread inequalities such as India, the implications for its citizens are vast:

The issues for the people are huge. Especially when you have, in a country like India where the vast majority are very poor...it is a country which, historically has had inequality as so deeply entrenched...in terms of caste, in terms of gender…in terms of so many things, I think it still holds. When you have the government giving up on its distributive role...that it had at least taken on. I think it is a transformation, abdication of the role of the state towards any kind of distributive policy...towards any kind of accountability. And I think this whole coming together of state and business is also geared by this idea of high growth. Because the state is obsessed with high growth...about India emerging as this huge power competing with China...and the ambitions of Indian business is to be a global player. And the state, you know, it is not really about holistic development but it is really the GDP notion of development.

As explained previously, India outlines its development initiatives and strategies for five year periods in development plans called Five Year Plans (see section 5.2). India has published the Twelfth Five Year Plan which covers 2012-2017 (Twelfth Plan). In the Twelfth Plan, the government appears to acknowledge the criticism of its prioritising of high economic growth and recognises the need for improved quality of life for its citizens in both economic and social dimensions. However, as illustrated in the following passage, it clearly states that a high GDP is a prerequisite for this to occur:

Planners are sometimes criticised for focusing too much on GDP growth, when the real objective should be to achieve an improved quality of life of the people across both economic and non-economic dimensions. The Twelfth Plan fully recognises that the objective of development is broad-based improvement in the economic and social conditions of our people. However, rapid growth of GDP is an essential requirement for achieving this objective (Planning Commission, 2013, p.3).

This passage in the Twelfth Plan goes further to explain why rapid growth of GDP is essential to inclusive development which can be summarized as the following: It creates the necessary expansion of total income and production which will, in turn, raise the living standards, it will provide employment, and, ultimately, social welfare programs are funded by economic growth (Planning Commission, 2013, p.3). However, as Mitra (2008) and Dev (2008) argue, inclusive growth in the Indian context is contingent upon pro-poor growth. As explored in Chapter Seven (section 7.2) India’s current economic growth was argued to be non-inclusive to those outside the middle and upper classes. The semi and unskilled labourers, agricultural labourers and rural populations were reported by elite policy stakeholders to have been largely excluded from this economic growth.

Using the welfare continuum that has social and corporate welfare located at the extreme ends (section 3.6.1); it appears India’s welfare strategy is positioned closer to the corporate welfare pole. However, its lack of social welfare may actually hurt business needs. As discussed in Chapter Seven (section 7.3) business complains that lack of skills and labour laws are holding back investment. Both of these problems would be helped by greater social welfare expenditure. FO is a Senior Economist with an applied economics and development research institute. Her expertise concerns FDI, regional trade agreements, and trade policies of developing countries. She commented on the need to adopt a more efficient system of social security so that labour reform can take place:

It is problematic and it is high time we went in for labour reform. We do not have this policy of hire and fire in India.... China can do it because they have a social security, but we don’t have that. So I think for investment in India to prosper and to move forward, I think the government has to bring in some kind of social security net for labour so that the trade unions can relax.

Although all respondents stressed the need for greater social welfare, some highlighted the problems of financing such initiatives for a developing country as large as India as GD observes. GB specialises in employers’ needs and his and department works to organize and advance the collective interests of employers in India:

So it is really a debate, you know? But to what extent can governments in the developing countries with their deficit constrictions...to what extent can they fund these active labour market policies? That is a big issue. To what extent can employers be asked to fund these...at the expense of competitiveness? Because of the fact is that besides whatever anyone may say, FDI flows into the developing world...and the major reason is cost. And what constrictions do the government face to fund these schemes? So these are issues faced by most European countries....it is not that there is a lack of the understanding of the importance of the issues....it just how can you do it?

RW is a Senior Employment Specialist with an international organisation that promotes decent labour standards. His research specialities are in areas of informal employment and working poor as well as labour regulations. RW discusses the need for both economic growth and social protection when connected to global markets. He observes that social protection is an important method for reducing inequality and poverty and that many developing countries are beginning to implement social protection programmes. He remarks that India is starting to do this but the programmes are fragmented and often not reaching the people in need:

One thing that is very important when connected to the global economy is social protection. And also it is a very direct way of attacking social inequality and poverty. Brazil is doing this....China is setting up an unemployment system and some transfer for the poor. India is developing a lot of schemes but they are not reaching all of the population. You need growth and jobs and social protection programs. And the countries don’t need aid agencies for this...and this is great. And low income countries are learning this. All countries need social protection but there are different levels depending on technical and fiscal capacity but it is necessary for development. India has set up different schemes but they are very fragmented and there is need for consolidation.

Although many respondents were very critical of government’s failure to provide appropriate social institutions for the majority of the population due to its preoccupation with economic growth, some did argue that the government was attempting to incorporate a level of welfare development in its national strategies. AB is the Director of an NGO that works to promote social equity and justice. He is very active in advocacy, networking and coalition building with a focus on issues of governance and civil society from the perspective of rights and justice. He described India’s development strategy as having both components of market led development and human and socioeconomic rights:

And at this moment, the two very, very significant strategies that one can look at: One is clearly of market led development...that is now seen as the solution to loads and loads of our problems. But on the other hand, I would also say that human development and rights...particularly economic and social rights also constitute another development trajectory. Though at the policy level I would say there is a constant tension between the two. But at the policy level they are talking with each other so you do have things like the National Rural Employment Guarantee Act which was opposed by a lot of market proponents who thought that the state should not get into something as massive as this. We have seen the Right to Education happening where again there is a huge budgetary implication for the state but the government and the political party said we have to do it. And the market proponents were opposing it.

AB’s reference to tension could serve to augment Murali’s (2010) conclusion that business’ preferences in policy making is limited by, among other factors, issues that are sensitive to and applicable to the mass population (see section 4.2.2). However, AB further highlights that although there is a dialogue of both strands of economic and social development strategy at the level of the central government, there appears to be a lack of implementation of the socioeconomic strategies at the local level:

But, unfortunately, at the local level the story is more tilted towards market led development. So therefore when the activists are very angst and angry, it is fair because at the local level what you see is the market led development model and you don’t see the trickle down of the rights development...human development or the economic social rights really trickling down to the local level.

This suggests problems with implementation of social protections at local levels. As will be explored in the following section, other respondents reported problems with the implementation of social protections as being particularly problematic.

These then are the perceptions of the government’s overall development strategy. Although there is recognition of the importance of social welfare in its development strategy, respondents suggested that most of the development policies are focused on economic growth and high GDP. The proceeding section will look specifically at stakeholders’ perceptions of the government’s ability to construct and implement FDI policies to mitigate disadvantages and promote advantages.




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