This chapter explored elite policy stakeholders’ perception of the government’s ability to balance the needs of business and its citizens in its development strategy. It also investigated perceptions of the government’s ability to construct FDI policies that effectively minimise negative consequences and maximise the benefits of TNC investment. The chapter first explored the nature of the Indian government- business relationship in order to gauge the compatibility and likelihood of business influence on policy construction. It was reported that prominent business leaders are members of boards and committees within the government ministries. Business leaders also accompany high ranking government officials to international summits which create both formal and informal networks and outlets to influence policy directives. Business associations directly consult with the government prior to the construction of policies as well as provide feedback on draft proposals to ensure that the preferences of industry are incorporated. International business associations have direct contact and meetings within government ministries in which they make their preferences explicitly known and often present their preferences as ideological hegemony. It was reported that the state and business have come together to form a ‘business lead’ development strategy to the detriment of other societal group’s needs.
The chapter proceeded to explore the government’s development strategies to better understand how social welfare development is implemented into its strategy. Respondents stated that the government prioritised high economic growth and high GDP over social protection and social welfare. It was also reported that both streams of thought—market led development and social welfare—were present at the policy level in the central government but that there was ‘a constant tension between the two’ with market led initiatives being implemented more often at local levels. In line with mainstream development thinking, the Indian government was reported to conceptualise social welfare development as an ‘add on’ to economic development and this was resulting in fragmented welfare provisions. The government appears to largely support notions of ‘trickle-down’ economic development.
Respondents were critical of the government’s ability to construct effective FDI policies. A common view was that the government was interested in quantity rather than quality FDI, and pursued an economic strategy that targeted FDI ‘come what may’ in the belief that high levels of FDI will ‘deliver what we need’. Some respondents reported problems with incorporating recommendations from think tanks into policy, and others stated that there were protections within the policies but they were not being implemented on the ground. Several respondents commented on the discord within Parliament that hindered the approval of policies resulting in a policy paralysis within India.
Thus far the empirical chapters have analysed India’s investment and development strategies and the government’s ability to mitigate harm and promote positive spillovers. With these debates in mind, the following chapter will investigate the perceived spillovers, both helpful and harmful, that FDI is bringing to India’s citizens, workers, local economies and communities.
Chapter Nine: FDI and its implications for citizens, workers and local economies
This final empirical chapter will explore the fifth main research question:
What spillovers, both helpful and harmful, do elite policy stakeholders feel TNCs are bringing to the citizens, workers and local economies?
As explored in Chapter Two (see section 2.4), inward FDI is often viewed as a positive resource for the host economy as it can contribute to overall economic growth, increase domestic productivity, increase employment and provide additional resources and capabilities such as technology, higher wages, management techniques, as well as access to global markets (Held et al; 1999; O’Brien and Williams; 2004). However, these same points are frequently disputed and used to highlight the negative effects that FDI can bring to a host country: few resources or harmful spillovers can occur from TNCs to the domestic environment, TNCs fail to provide any real benefit to the host economy, TNCs crowd out domestic enterprises and establish a monopoly over the host business environment (O’Brien and Williams; 2004). TNCs are accredited with taking initiatives to help the host country with development goals via company CSR activities (Utting, 2005). They are equally accredited with exploiting labour, driving down labour standards, and damaging the environment (Farnsworth, 2010).
The research into the spillovers from FDI into developing countries is very conflicting and contradictory and these interviews indicate wide-ranging differences of opinions in regards to the impact of FDI in India. Overall, respondents reported that FDI brought a mixed bag of both positive and negative aspects to the country, its citizens, and the economy. This chapter will proceed in the following way: section 9.2 will explore the impact on the economy and section 9.3 will examine the impact on domestic industries, section 9.4 will highlight the impact of FDI on labour conditions and employment and section 9.5 examines issues concerning labour exploitation including home based work and child labour. The last section, section 9.6, will discuss the impact of FDI on land issues.
9.2: The impact of FDI on the economy
For this sample, no respondent criticised FDI across the board or thought India should close its economy to foreign investment; every respondent acknowledged the potential benefit that FDI could bring to a host economy. KD is actively involved in the campaign against the corporate monopolisation of the retail sector in India. This campaign vigorously conducts mass rallies and protests against FDI in the retail sector. Yet, KD explained that the organisation was not ‘against FDI in general’:
FDI is welcome if it is beneficial for your economy and society and largely we believe that it could be beneficial if it brings in new jobs or expands your base of production or brings new technology to the country. So unless one of these 3 categories are getting fulfilled, we need to be cautious on every element.
Here, KD appears to suggest that FDI is something that should not be permitted for the sake of having open markets; there should be a need for it. Several respondents expressed viewpoints that the debate concerning FDI was about the terms on which foreign investment should be allowed, and that there should be clear indications and assurances that India was going to gain more from the advantages than the costs. One respondent (SR) stated: “When you are giving access to a large market, what are we gaining in exchange of that? So that is the question.”
FDI was often portrayed as something that should be exploited for overall gain but conditions needed to be implemented to ensure benefit. CC is a Professor of economics with a major university in India. His area of expertise is development economics. He expressed a similar viewpoint:
Let me put it this way, first of all if you are a late industrializing country or a late developing country, you should use the technological benefits the world over...there is no reason to reinvent the wheel, ok? So the point is not do we need FDI or not...the point is where do we need FDI and on what terms.
One of the main reasons that countries want to attract FDI is because it can bring needed revenue and foreign exchange. FDI is often credited with increasing the overall GDP of the host country’s economy. In light of India’s recent economic slowdown, the finance minister, P Chidambaram stated that foreign investment was “imperative” to reviving growth in the economy (The Hindu, 2013).
CD is a Senior Research Fellow at an applied economics research institute. Her research interests are international and development economics. She describes an economic necessity for FDI:
But if you ask me as an economist, yes, FDI is good for India...we need FDI because we don’t have money. Where the government is purposely running deficits...growth rate is stalled now...our taxes, our revenues are down...so where are you going to get the money? We supposedly want to build our failing infrastructure with $1 trillion over the next 5 years...where is the money going to come from? Even the big [domestic] multinational companies within India don’t have that kind of money; they need to borrow abroad… so FDI is good.
As CD highlights here, a reported benefit of FDI to India was that domestic companies could access the capital available in the markets to expand their business ventures. PJ is a Professor of economics at a major university located in New Delhi. His areas of specialization include labour economics, development economics, the agriculture sector as well as rural development. PJ agrees with CD and highlights the importance for the domestic business sector:
In regards to the benefits, it has certainly led to the deepening of India’s capital markets. It has created a space to manoeuvre for the corporate sector in India because they don’t have to only rely on the domestic savings and resources. The basic situation has certainly changed from being a very constrained economy in terms of FDI and in general the flow of foreign currency, we are now in a situation where it is a situation of plenty or surplus. So in some ways it has helped the corporate sector.
However, these deep capital markets may not be a permanent fixture in India’s economy, as one respondent explained (CC). He suggested that FDI has not been beneficial for India’s balance of payments. As explained in Chapter Two (see section 2.4) TNCs often use transfer pricing to manipulate corporate tax rates from their own subsidiaries to give the appearance that they are making less profit, which decreases the amount of taxes that the company has to pay and works to increase the company’s overall repatriation of profit. He argued that the occurrence of transfer pricing coupled with the lack of export revenue from India’s market seeking FDI means the amount of capital leaving India will always be larger than the capital the TNCs are bringing to India, thereby contributing to a negative balance of payments. He remarked that it may appear that India has a surplus of reserves but these are borrowed foreign reserves that can be withdrawn. This is different to China which has earned its foreign exchange largely through its exporting industries.
Several respondents complained that the type of FDI coming to India is not creating enough employment. Several respondents referred to this as ‘jobless economic growth’. AK, a representative of an international NGO that works to fight poverty and injustice explains that it is the domestic small and medium enterprises (SMEs) that are contributing to employment and not the big industries with various foreign players. Because there is economic growth with little job creation, he suggests the majority of the people are not a part of India’s economic expansion:
They promise that FDI will increase employment and help to generate the economy but studies have shown that hardly employment has increased. SMEs have generated the most employment…small and medium enterprise...not in the large scale industries with FDI. And all the money is going to the big ticket industries where employment is least actually being generated. So people are not a part of this expansion of growth.
As explored in Chapter Four (see section 4.3.1) India’s high service sector growth has been attributed to high labour productivity. When asked about the problem of jobless growth, SV, an employment specialist with an international organisation promoting decent labour standards, remarks that while employment has not grown, productivity has increased and this is a positive feature of development:
So firms in India are producing more with the same amount of workers...so there has been increasing productivity, which is a very positive thing, and it has been coming through more efficient use of resources. And this is a positive thing. And this is where I think the debate about ‘jobless’ growth goes down the wrong track.
Whilst labour productivity may shed light on some of the issues pertaining to jobless growth, there are still irregularities occurring in the composition of the labour force and FDI is not appearing to alleviate such problems. Participants revealed that labour force participation is down for women in India in the recent round of NSSO survey data (2009-2010) as SV reveals:
And the other issue to understand is that in India there are some strange things happening to the labour force. But interestingly in the last 5 years female labour force participation, particularly, has fallen quite dramatically. Some people say that is due to increase in education but that cannot explain why across all age codes, it has fallen in all areas for women. Some economists explain there are no jobs available and I am not convinced on that. But there is also a problem with how to measure women’s work in these places...if you work at home there is market activities, there is non- market activities and the boundaries are very blurred...what we understand as work is 9 to 5 in an office doesn’t count for 99% of the people in this country...it is something that a lot of people are working on but I have not seen any convincing answers to explain what is happening.
AS is a Senior Research Fellow for an applied economics research organisation. Her areas of expertise are the informal economy, gender equity, and globalisation and development. She highlights that the nature of women’s work is often not recognised as market work:
But a lot of work done by women is market work but not recognized as market work...a lot of the activities that women do in agriculture...cleaning up in dairy farms, for example is not considered market work. And the recent figures that have come out have shown that women in the labour force has declined. Workforce participation has declined and women’s participation has declined more. That has come out in the 2009/2010 data. And why should women’s participation suddenly fall? In my studies, I have found that women’s non market work rose....and that would lead to less time for them to participate in market work. And this lowers their empowerment....where women can have more market access and income then they have more empowerment in decision making.
Both of these quotes indicate institutional difficulties in measuring women’s work in India, in particular, if it occurs in the home. India’s declining employment rates for women are an indication that while FDI may be contributing to overall economic growth; it is not increasing employment opportunities.
These then are perceptions concerning the effect FDI has had on the overall economy. The following section will examine stakeholders’ perceptions of the impact FDI has had on the domestic industry and businesses.