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


: Original contributions to knowledge



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10.3: Original contributions to knowledge


The empirical findings of this research make an original contribution to knowledge by confirming and extending a range of academic theories. The contributions are outlined here.

The empirical findings of this thesis add to theories which contend the benefits to developing countries from FDI are far from automatic and there do not appear to be any universal guarantees of positive spillovers (OECD, 2002, 2008; OECD-ILO, 2008; Moran et al, 2005; Nunnenkamp and Spatz, 2004; Dunning, 2002, Lipsey and Sjoholm,2005; Moran et al, 2005 ). My findings add to the inconclusiveness and contradiction that is present in FDI research (see section 2.4). The interviews from this sample demonstrated conflicting opinions with several of the opinion that India has given more in concessions to foreign investment than it has gained in direct spillovers. On the other hand, other respondents, in particular, ones from Indian business associations indicated indigenous companies have gained much from FDI.

Lipsey and Sjoholm (2005) and Gore (2000) argue that despite concrete evidence that FDI does much for development, developing country policy makers have made up their minds that FDI is key to fulfilling many development needs and that looking to global markets for development solutions is the way development ‘should’ occur. A similar argument concurs ‘there is no alternative’ (TINA) to globalisation and open global markets (Chang, 2003, 2014; Stiglitz, 2006; Newell, 2002) (see section 2.2.3, 2.5). The empirical findings here confirm this argument. The majority of participants from this sample felt the Indian government believes whole heartedly in the power of FDI to solve its development needs and this investment must be sought “at all costs” and “come what may” regardless of the harm and costs it may bring. Many participants felt the government’s vigour to attract FDI has resulted in reckless and maladapted policies that are neither capable of mitigating negative consequences or extracting potential benefit from FDI.

The findings of this thesis add to academic debates which contend that mainstream development thinking continues to prioritise economic growth and the needs of private capital over social welfare (Marques and Utting, 2010; Farnsworth, 2010) which is conceptualised as an ‘add on’ to future economic development (Mkandawire, 2004). The majority of the elite policy stakeholders in this sample stated the Indian government firmly believed in the strategy of ‘trickle down economics’ whereby if the economy grows at a certain rate then poverty will abate. Participants reported that the Indian government’s development strategy is to attain high GDP growth and while market led development and social welfare are often both present at the policy level, there is “a constant tension between the two” with market led initiatives being emphasised and “implemented more at local levels.” In line with mainstream development thinking, participants felt the Indian government conceptualises social welfare development as an ‘add on’ to economic development and this was resulting in fragmented social welfare policies and provisions in India.

The empirical findings here verify debates that social welfare is a productive factor, necessary for sustainable economic development and for employment growth (Morel et al, 2012; Keynes, 1936, 1980; Gough, 2000; Kwon, 2014; Dreze and Sen, 2013) and that ignoring social welfare can hurt investment opportunities (Farnsworth, 2012). The lack of social welfare is directly tied to four main consequences which have stifled sustainable economic development and manufacturing investment: the exclusion of the majority of the population from skilled and productive employment opportunities, constriction of demand for manufacturing products, the lack of skills needed for a competitive manufacturing sector and inflexible and complicated labour laws.

First, participants agreed that the service sector investment is catering to the middle class who are skilled due to their capacity to invest in their human capital development. The majority of the population, however, fall below the middle class and do not have the skill level to participate in the available productive market opportunities. Dreze and Sen (1995) maintain that the structural inequalities in India were very extensive prior to economic liberalisation and, thus, when the markets opened, only a segment of the population could take advantage of the expanded market opportunities when they arrived post 1991. Responses from my interviews confirmed this finding.

Second, elite policy stakeholders explained that embedded structural income inequalities greatly narrowed India’s domestic markets as the suppression of real incomes for a large share of the population decreased the demand for goods and, in particular, manufactured goods. The constricted pattern of demand also helped to propel the service sector as the increased incomes of the middle and upper classes who were able to participate in the high end growth segments of the market after liberalisation, resulted in their diversification of demand in favour of services (Ghosh, 2004, 2010; Mazumdar, 2011).

Third, elite policy stakeholders listed lack of skills in the labour force as holding back the manufacturing sector. Skill deficiency is directly tied to lack of quality public education. Fourth, rigid labour laws were also argued to play a role in the stifling of manufacturing FDI. It was argued by elite policy stakeholders that labour laws could be effectively amended to better protect workers and provide flexibility to employers if social security was afforded to workers. Thus by prioritising economic growth and high GDP over social welfare, the government has hurt the needs of investors as well as its labour force.

The findings here, on one hand, negate structural transition theories but, on the other hand, confirm the importance of structural change in economic growth. Historically, economic development and structural change entailed a linear transition from agriculture to manufacturing to a service sector-dominant economy (Lewis, 1955; Kuznets, 1966; Cameron, 1993) (see section 4.3.1). As economies develop, the theory holds, the agriculture sector’s productivity decreases and the shift of workers from agriculture to manufacturing increases growth, as productivity in the manufacturing sector is typically higher than agriculture (Cameron, 1993; Krueger, 2007). This shift to manufacturing in turn promotes the productivity in the agriculture sector as surplus labour is absorbed (Cameron, 1993; Krueger, 2007; Mazumdar and Sarkar, 2008). In time, labour begins to shift to the service sector along with a demand for services after a prolonged period of an industrial- dominant phase of development (Lewis, 1955; Kuznets, 1971; Papola, 2006). However, India has not experienced a prolonged period of manufacturing led economic growth. Respondents described India’s growth trajectory as having bypassed, or “leapfrogged,” the industrial-dominant phase of structural change and transitioned from agriculture to a service sector-led economy. The findings here suggest a country’s development does not necessarily have to follow the three step linear transition to achieve economic growth. However, the sustainability of India’s economic growth from a skewed service sector development model was repeatedly questioned by participants. What was made clear by participants was that the lack of structural transition in India’s employment was a main cause of economic exclusion for the majority of the labour force. Thus the findings confirmed the importance of structural transition in employment.

The empirical findings of this thesis confirm and extend debates concerning business power and its ability to influence and shape public policies. Participants in this sample concurred with Murali (2010) that businesses in India have direct access to policy-making in India and this access has become more palpable since economic liberalisation (see section 3.2, 8.2). In line with Fuchs (2005) and Farnsworth (2004, 2010) business power in India assumes different forms such as structural and agency forms but is variable in dictating policy outcomes. Whereas some research (Pierson, 1995; Vogel, 1996; Hacker and Pierson, 2002; Farnsworth, 2004) concludes that the ability of business to influence policy outcomes is variable across time and space, the empirical findings here found it can be variable within roughly the same time period and within the same country. Farnsworth (2004, 2010) lists five factors that serve to promote or constrain business influence and this thesis analysed two investment policies whereby four of the five factors were constant, yet the outcomes of the policies in regards to the level of social protection afforded are very different. It was the fifth factor, the relative power of other actors who have a vested interest in the outcome that appeared to make the difference in the level of business demands that were conceded within the policies. Here, the empirical findings affirm Murali’s (2010) and Varshney’s (1998) conclusions that business influence on policy construction is influenced by the level of mass political appeal that is drawn to the issue. Participants in this sample reported they felt the government will not take unpopular decisions that may hurt them in upcoming elections. For one of the investment policies analysed, the MBRT, it was a mass concern to much of the population and sparked widespread protest and condemnation for opening the multi-brand retail sector to FDI. For this policy, several conditions and stipulations were implemented into the bill to ensure better social protection. The second investment policy, the NMP, did not become a mass political issue and, it is argued, the policy afforded business all of their requests and demands including the curtailment of national labour laws within manufacturing zones.

The empirical findings here confirm and in one instance extended criminological and sociological theories of corporate crime, state and state-corporate crime. Specifically, the empirical findings as well as the research literature reveal that businesses, by and large, are not abiding by labour regulations in India (Sharma, 2006; Nagaraj, 2004; Bhattacharjea, 2006) (see section 6.3.2, 7.3.3). Respondents from this sample, in particular ones from business associations, conveyed opinions that Indian labour laws are cumbersome, complex, rigid and are thwarting investment and growth. This confirms Clinard and Yeager’s (2006, 1980) and Benson and Simpson’s (2015, 2009) theories of rationalisations and neutralisations ingrained in corporate culture whereby it is believed regulations can be adhered to selectively.

It is also argued here that the widespread negligence of the Indian government to enforce labour regulations is also an example of state-corporate crime as postulated by Kramer et al (2002) (see section 3.3.5.4). Furthermore, it is argued that the empirical findings reveal that the state may have evolved from a position of state-facilitated corporate crime by not enforcing labour laws to state-initiated corporate crime with the implementation of the NMP in which labour laws are curtailed (see section 6.3.2, 6.4). Working conditions in manufacturing units where labour laws should be applicable were described by participants as exploitative and even violent. Thus, this thesis questions whether exploitation will increase as a result of the liberalisation of labour laws within the Manufacturing Zones established by the National Manufacturing Policy. Should this occur, the deviance resulting from curtailed labour laws is at the direction and initiation of the state and its policy, thus, it could be argued to be an implicit act of commission according to Kauzlarich et al’s (2003) continuum of complicity (see section 3.3.5.4). This empirical finding would be an extension of Kramer et al’s (2002) theory of state-corporate crime. Kramer et al (2002) divided state-corporate crime into two types but did not postulate that the state could evolve or transition from one position to another. Bruce and Becker (2007), however, did find that the state emerged from initiator to facilitator in their research. However, the empirical findings here demonstrate that the state can also evolve from facilitator (not enforcing labour laws) to initiator (devising a policy that could increase harm and exploitation to workers).

Empirical findings here also concluded that seed TNCs are committing corporate crime by bonding children to labour, thus, violating two pieces of national legislation: the Bonded Labour Act as well as the Juvenile Justice Act. The bonding of child labour to seed TNCs confirmed criminological and sociological theories of corporate crime, specifically, theories relating to organisational culture, criminogenic opportunity and rational choice (see section 3.3.5, 9.5). The empirical findings regarding seed TNCs support Benson and Simpson’s (2015, 2009) opportunity perspective which outlines three characteristics that make criminogenic opportunity more viable (see section 3.3.5.2). Specifically, the findings conclude that TNCs have legitimate access (first characteristic) to very poor rural areas where many families are financially desperate. Second, seed TNCs are spatially separated from their victims (second characteristic) as they hire local seed farmers to contract and bond the children to the labour. Third, the TNCs have a superficial appearance of legitimacy (third characteristic) in that child labour does not violate Indian law; however, bonding children to the work is against the law.

These empirical findings regarding seed TNCs further validates Paternoster and Simpson’s (1993) theory of corporate crime as a rational choice (see section 3.3.5.3, 9.4). One respondent who is an expert in the field and has worked with seed TNCs in regards to child labour indicated that they have weighed the costs of employing adults with the benefits of not complying with national legislation and decided complying with the law is too costly and would damage profits. The respondent also stressed that seed TNCs have not internalised that children should not be exploited and, according to Paternoster and Simpson (1993), this would suggest the seed TNCs have adopted situational rules-in-use that legitimise their deviance. Other aspects of Paternoster and Simpson’s (1993) theory are also confirmed by my findings: seed companies move production where they perceive formal and informal penalties will be weak, they will not experience a loss of self-respect and have broken the laws in the past. Furthermore, my empirical findings regarding seed TNCs also confirm criminology theories of organisational strain (Messner and Rosenfeld, 2012; Benson and Simpson, 2009; Yeager and Simpson, 2009) in that local farmers working for TNCs are the least resistant to stop using child labour whereas local independent farmers were more willing to desist in using child labour. This suggests that the farmer involved in TNCs experience greater organisational strain and possibly anomie (Messner and Rosenfeld, 2012; Passas, 2010).

This thesis’ empirical findings also argue that child exploitation by seed TNCs is the result of corporate crime as well as state crime (Rothe, 2011; Rothe and Friedrichs, 2006) as the state is failing to eliminate violations of the Bonded Labour Act or Juvenile Justice Act.

Having outlined the contributions to knowledge, the proceeding section will discuss the limitations of this research.




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