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


: Impact of FDI on labour conditions and employment



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9.4: Impact of FDI on labour conditions and employment


As discussed in Chapter Two (see section 2.4.4) TNCs have a global reputation of paying higher wages to employees in comparison with the domestic companies in the host country as well as providing better working conditions (OECD, 2002; 2008). They have an equally conspicuous global reputation of driving down wages and causing a race to the bottom in terms of labour standards (OECD-ILO, 2008; Farnsworth, 2010). These issues are often context specific in regards to the industry, the TNC, and labour regulations within the host country (OECD, 2008). The aim of this section is to explore the perceptions of the costs and benefits to employees of foreign TNCs in India.

As stated previously, TNCs are credited with paying higher salaries compared to the domestic companies in the host country. It was largely believed by respondents in this sample that TNCs do tend to pay above average salaries in comparison to domestic companies. Several respondents highlighted that this was done in order to attract the best talent from the labour force, a tactic they referred to as ‘cherry picking’. RW, employment specialist with an international organisation that promotes decent labour standards, remarks that TNCs do pay higher wages compared to domestic companies in an attempt to attract better workers. He goes on to state that often in developing countries, workers with higher levels of skill are in demand while those with fewer skills are not (see section 7.3.4 regarding skill deficiencies):

It is often hard to identify the effect of multinationals on employment but they are a source of employment, and they generally pay higher wages than the local companies so from a wage point of view, they are not necessarily causing a race to the bottom, they are often trying to get better workers and they are paying higher wages to get them. There is incredible competition for the best talent. And this is one of the great tragedies of developing countries, they have a shortage of labour at the high end and you have a surplus at the lower end. And this again is linked to the skills problem, this mismatch. The fact is if you are an engineer or IT, people are trying to snap you up...because they know that a highly skilled workforce is necessary to compete.

The fact that TNCs pay higher wages, while positive for those who are employed for them, can be seen as a negative factor for domestic firms who see TNCs as driving up the wage base. Thus, higher wages are positive for employees but not necessarily for the competing domestic employers as BN, Professor of economics specializing in trade and foreign investment, underscores:

Now the bad aspect of this is that they [TNCs] may hike the cost of labour because they are ready to pay much more for the managers, supervisors, and for the workers...and this… by trying to draw from the local markets such workers often out of other factories where they are working, they can push up the cost of the inputs and thereby have an adverse effect. But whether you see this as good or bad depends on your point of view because of the point of view of the workers, it is good that their wages are going up. From the view of the local units, it is very bad because they now have to pay more for labour.

GD is a specialist with the employers’ unit within an international organisation that works to promote fair labour standards. He suggests that the larger TNCs, by and large, have been a positive influence on working conditions and labour market regulations. He acknowledges that TNCs have been accused of human rights abuses but in his experiences with TNCs, they have demonstrated a positive influence on labour market regulations:

We work with employers organisations who have multinational members. But my own experience...my own experience is that the bigger MNCs, the big ones...because in 1977 there was a Declaration of Multinational Enterprises ...how they should operate...the ILO Declaration for MNCs in 1977 which set standards for how they should work in other countries. So the larger MNCs, I must say, have been a positive influence on labour market regulations....that is my own experience. There are so many MNCs going around ...I know there have been various accusations and litigations against MNCs on the government front, especially in Africa ...and many from the human rights front...but all in all, in my personal experience, is that the larger MNCs have been a positive influence when it comes to labour regulations. And also their working conditions are much better...Like Unilever...Unilever is one of the most attractive places to work for in the developing world. I would say that they have very good standards when it comes to labour. Most of these companies have subscribed to the Global Compact. So I would say, all in all, MNCs have had a positive impact on labour relations...and they have often set a benchmark for national companies also to look towards and adopt.

However BJ is not as complementary of TNCs. BJ is a specialist on international labour standards and an expert on discrimination for an international organisation that promotes fair labour standards. His areas of specialisation are social origin, Tribal and Indigenous peoples, and disabilities. He had been speaking of poor working conditions and labour standards in South Asia, particularly for garment workers, and how they are expected to work very hard in poor conditions. He then widened the generalization of poor working conditions to include industries such as automobiles and gave an example of the conditions in the Maruti Suzuki plant in New Delhi. He compares the description of working conditions in the Maruti Suzuki plant to the movie Modern Times by Charlie Chaplin which is seen as a social commentary on the poor working conditions in the industrialization era:

And the working pressure and the speed of working is very, very intense...so no toilets breaks. Even in the automobiles or automotives...the Maruti-Suzuki plant here in Delhi… there was a huge strike which was again about...a union employees wanted...they wanted to create their own union and management said, “no, we have our own union.” And if you read about working conditions, they are not allowed to speak to each other, they are not allowed to whistle, they are not allowed to laugh...they can only have limited access to toilets. So it’s like Charlie Chaplin’s Modern Times. What joy is there to work if you can’t even whistle?

An employment trend that is currently occurring in India is an increase in casual employment. Even in the organized work sector, employers are increasingly hiring labour though contract employment agencies for shorter periods of time and without any employment benefits, many respondents argued. This practice of replacing permanent labour with casual or contractual labour is happening with both domestic and foreign firms including global TNCs. RW, research specialist in areas of informal employment and working poor as well as labour regulations, explains that deterioration of work conditions are linked to the overall structure of the global economy. He suggests the nature of globalisation is causing firms to cut costs and increase casual labour, and, therefore, being connected to the global economy is causing countries to be more vulnerable to these global practices:

Well at the official sort of level, we recognise that globalisation, in general, has contributed to decent work deficits and increasing casualization. Globalisation, not just FDI, but also trade and being connected to the global economy makes countries more vulnerable...it makes cost considerations and competitiveness more of a driving issue. And this, of course, has economic benefits but the down side is that work conditions can deteriorate.

This section has focused on working conditions within TNCs. However, as the last passage suggests, there are also impacts for workers in being connected to the global economy. The next section will address exploitative working conditions in particular for those indirectly employed to TNCs though subcontracting chains.




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